On June 8, the Reserve Bank of India’s monetary policy committee (MPC) raised the repo rate, a key policy rate at which central bank gives short-term funds to banks, by another 50 basis points, putting pressure on the country’s high inflation rate.
With this 50 basis point change, the repo rate now stands at 4.9 percent. Inflation is expected to be 6.7 percent, according to the MPC. Retail inflation hopped to a near-eight-year high of 7.79 percent in April, up from 6.95 percent in March, according to data released on May 12.
The latest Consumer Price Index (CPI) inflation reading is not only far above theoretical limit of the RBI’s 2-6 percent tolerance band, but it is also the 31st month in a row that it has exceeded the medium-term target of 4 percent.
The latest inflation data backs up the Monetary Policy Committee’s evaluation that relentlessly high inflation is policymakers’ biggest concern right now.
The MPC has a mandate to keep inflation within the 2-6 percent band, and if it fails to do so for three quarters in a row, it will have to explain to Parliament why it failed to do so.
The RBI raised the repo rate by 40 basis points and the CRR by 50 basis points on May 4, in an impromptu announcement, launching a major campaign against rising prices.
Since then, a top MPC representative and the governor of the Reserve Bank of India have hinted at more rate hikes to keep inflation in check.
RBI Governor Shaktikanta Das stated that another rate hike was sure to happen during the out-of-cycle rate hike on May 4 and in a press conference with CNBC TV 18.
