Monetary Policy Review: Repo Rate up 40 basis Points, Crr up 50 BPS
STORIES, ANALYSES, EXPERT VIEWS
The Reserve Bank of India (RBI), in a sudden move on May 4, increased the policy repo rate by 40 basis points (bps) to 4,4% and Cash Reserve Ratio (CRR) by 50 bps to 4.5%.
This is the first-rate hike since August 2018. Repo rate is the rate at which banks borrow from the RBI, and is a key tool in the latter's arsenal to fight inflation.
Making an unscheduled announcement, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) of the RBI met in an off-cycle meet and decided to increase the policy rates to curb the rising inflation and to support growth.
RBI would maintain its accommodative stance: Despite the rate hike, the RBI would maintain its accommodative stance and fundamentals of the Indian economy remained strong, he stated.
The RBI said the increase in the policy repo rate had come with immediate effect. Consequently, the standing deposit facility (SDF) rate stands adjusted to 4.15-% and the marginal standing facility (MSF) rate and the Bank Rate to 4.65%.
“The MPC also decided to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth,” the RBI said in a statement.
“These decisions are in consonance with the objective of achieving the medium- term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth,” the statement noted.
Cash reserve ratio also hiked: The MPC also hiked CRR (cash reserve ratio) by 50 basis points to 4.5 per cent from May 21. Under CRR, the commercial banks have to hold a certain minimum amount of deposit as reserves with the central bank. The percentage of cash required to be kept in reserves as against the bank's total deposits, is called the CRR.
India's 10-Year benchmark bond yield was up at 7.41 per cent after RBI raised its policy rate.
