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Reserve Bank of India (RBI) Governor Shaktikanta Das on Monday indicated that the central bank would continue to hike policy interest rates to bring down inflation but refused to say whether it will be raised to the pre-pandemic level.
“Expectation of a rate hike is a no-brainer. There will be some increase in the repo rate. By how much, I will not be able to tell now but to say that (it will be hiked) to 5.15 percent now will not be accurate,” Das said in an interview to CNBC-TV18.
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He also said the RBI will not allow a runaway depreciation of the rupee, adding that the currency has performed better than many other emerging market currencies. The Indian currency has depreciated over 6 per cent in the last one year.
On May 4, the MPC surprised everyone by hiking the repo rate by 40 basis points to 4.4 per cent, citing inflationary pressures. Repo is the rate at which the RBI lends short-term funds to banks. The RBI also increased the cash reserve ratio by 50 basis points to 4.50 per cent to suck out liquidity.
He said the market was “right in thinking” that the MPC (Monetary Policy Committee) wants to raise rates in the next meeting on June 8. The central bank also wants to remove the overhang of liquidity in the system over two-to-three years, he said.
“One of the reasons for ‘out of turn’ action was to avoid a steep hike in June. Broadly, the RBI wants to raise rates in the next few meetings, at least in the next meeting,” Das said.
In April, retail inflation surged to 7.79 per cent, highest since May 2014. The print was 84 basis points higher than the March number of 6.95 per cent.
In April, the retail inflation surged to 7.79 per cent, the highest since May 2014. At 7.79 per cent, the Consumer Price Index inflation print for April was 84 basis points higher than the March number of 6.95 percent, data released on May 12 by the ministry of statistics and programme implementation showed.
On May 21, the government cut the central excise duty on petrol by Rs 8 a litre and on diesel by Rs 6. It also waived customs duty on the import of some raw materials, including coking coal and ferronickel, used by the steel industry.
Das said that India has entered into another phase of coordinated fiscal and monetary action to quell inflation. The recently announced fiscal measures will have a “sobering impact” on inflation going forward, Das said.
“We will be able to manage the current account deficit very comfortably this year,” he said. “We don’t expect a big jump in the current account deficit,” he said, adding that the rising imports point to the revival in domestic demand. “I have a sense that government will maintain the fiscal deficit target” this year,” Das said.
The RBI move to hike Repo rate is expected to push up interest rates in the banking system. Equated monthly instalments (EMIs) on home, vehicle and other personal and corporate loans are likely to go up. Deposit rates, mainly fixed term rates, are also set to rise. By hiking the Repo rate and CRR, the RBI is aiming to keep inflation — which is already close to 7 per cent — at its desired level and control and monitor money flow into the banking system. Banks have already increased the MCLR and repo-linked lending rates, passing on the RBI repo hike to the customers.
