RBI hikes benchmark lending rate by 50 basis points to curb inflation

PTI, Aug 5, 2022, 11:02 AM IST

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Mumbai: The Reserve Bank of India (RBI) on Friday raised the benchmark lending rate by 50 basis points to 5.40 percent to tame inflation.

With the latest hike, the repo rate or the short-term lending rate at which banks borrow has crossed the pre-pandemic level of 5.15 percent.

This is the third consecutive rate hike after 40 basis points in May and 50 basis points increase in June. In all, the RBI has raised the benchmark rate by 1.40 percent since May this year.

All six members of the Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, unanimously voted for the rate hike.

The Consumer Price Index (CPI) based inflation, which RBI factors in while fixing its benchmark rate, stood at 7.01 percent in June. Retail inflation has been ruling above the RBI’s comfort level of 6 percent since January this year.

Inflation based on the Wholesale Price Index (WPI) remained in double-digit for 15 months in a row. The WPI reading was at 15.18 percent in June.

The latest RBI action follows the Bank of England raising the rate by 50 basis points, the biggest hike in 27 years, to 1.75 percent.

Last month, the US Federal Reserve effected its second consecutive 0.75 percentage point interest rate increase, taking its benchmark rate to a range of 2.25-2.5 percent.

Highlights of RBI monetary policy

Following are the highlights of the RBI’s fourth monetary policy review of fiscal year 2022-23 announced by Governor Shaktikanta Das:

• Key short-term lending rate (repo) raised by 50 basis points (bps) to 5.4 per cent; third consecutive hike
• In all, 140 bps hike in repo since May 2022 to check inflation
• GDP growth projection for 2022-23 retained at 7.2 per cent (pc).
• GDP growth projection: Q1 at 16.2 pc; Q2 at 6.2 pc; Q3 at 4.1 pc; and Q4 at 4 pc
• Real GDP growth for Q1:2023-24 projected at 6.7 per cent
• Domestic economic activity exhibiting signs of broadening
• Retail inflation projection too retained at 6.7 pc for 2022-23
• Inflation projection: Q2 at 7.1 pc; Q3 at 6.4 pc; and Q4 at 5.8 pc; Q1:2023-24 at 5 pc
• India witnessed large portfolio outflows of USD 13.3 billion in FY23 up to August 3
• Financial sector well capitalised and sound
• India’s foreign exchange reserves provide insurance against global spillovers
• Monetary Policy Committee decides to remain focused on withdrawal of accommodative stance to check inflation
• Depreciation of rupee more on account of appreciation of US dollar rather than weakness in macroeconomic fundamentals of the Indian economy
• RBI to remain watchful and focused on maintaining stability of rupee
• Rupee depreciated by 4.7 pc against US dollar this fiscal year till August 4
• India’s foreign exchange reserves remain fourth largest globally
• Mechanism to be activated to allow NRIs to use Bharat Bill Payment System for payments of utility and education on behalf of their families in India
• Next meeting of rate-setting panel scheduled for September 28-30, 2022.