RBI Monetary Policy LIVE Updates: RBI Governor Shaktikanta Das says expecting inflation to come down close to the target of 4% over a two-year period

While talking about RBI’s letter to Central Government on inflation, he said, “If you see the legal provisions under the RBI Act, the MPC has to have a meeting to discuss the RBI’s letter to the government. We are expecting inflation to come down close to the target over a two-year cycle. That was our expectation earlier and even now. But there are so many uncertainties coming in from time to time”.

The Reserve Bank of India (RBI) on Friday raised the benchmark lending rate by 50 basis points to 5.90 per cent in a bid to check inflation, which has remained above its tolerance level for the past 8 months.

With the latest hike, the repo rate or the short term lending rate at which banks borrow from the central bank is now close to 6 per cent.

This is the fourth consecutive rate hike after a 40 basis points increase in May and 50 basis points hike each in June and August. In all, RBI has raised benchmark rate by 1.90 per cent since May this year.

The six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das decided in favour of the rate hike.

The Consumer Price Index (CPI) based inflation, which RBI factors in while fixing its benchmark rate, stood at 7 per cent in August. Retail inflation has been ruling above the RBI’s comfort level of 6 per cent since January this year.

The latest RBI action follows the US Federal Reserve effecting the third consecutive 0.75 percentage point interest rate increase, taking its benchmark rate to a range of 3-3.25 per cent earlier this month.

The Reserve Bank of India on Friday slashed the growth projection to 7 per cent for the current fiscal from the earlier forecast of 7.2 per cent, citing aggressive tightening of monetary policies globally and moderation in demand.

Unveiling the fifth monetary policy for this fiscal, RBI Governor Shaktikanta Das said the central bank remains committed to price stability to put the country on the sustained path of growth.

Real GDP growth in the first quarter of the current fiscal was 13.5 per cent.

Das, however, cautioned that there is a third wave of shock globally triggered by aggressive monetary policy tightening to curb inflation.

RBI retained its inflation projection for current fiscal year at 6.7 per cent amid global geopolitical developments triggered by Russia-Ukraine war.

RBI Governor Shaktikanta Das said the impact of inflation globally is weighing heavily on the domestic market.

For September quarter of 2022-23, RBI projected retail inflation at 7.1 per cent.

For third quarter, inflation is estimated at 6.5 per cent and further down to 5.8 per cent in March quarter with risks evenly balanced, the governor said.

For first quarter of next fiscal year, retail inflation is forecast at 5 per cent. The RBI on Friday raised the benchmark lending repo rate by 50 basis points to 5.9 per cent. The central bank has the mandate to keep retail inflation in a band of 2-6 per cent.

On forex reserves Governor Shaktikanta Das on said that the central bank’s forex reserves umbrella has continued to remain strong despite uncertainty in markets. He said the RBI has been intervening in the forex market based on continuous assessment of the prevailing and evolving situations.

Das said about 67 per cent of the decline in reserves during this financial year that started Apr. 1 is due to valuation changes arising from an appreciating US dollar and higher US bond yields. The governor said that there was an accretion of US$ 4.6 billion to the foreign exchange reserves on balance of payments (BOP) basis during Q1:2022-23.

??”India’s other external indicators, viz., external debt to GDP ratio; net international investment position to GDP ratio; ratio of short-term debt to reserves; and debt service ratio also indicate lower vulnerability as compared with most other major EMEs6. In fact, India’s external debt to GDP ratio is the lowest among major EMEs. In the final analysis, we remain confident of meeting our external financing requirements comfortably,” said Das.

India bounced back strongly from the coronavirus pandemic but is now grappling with the same headwinds buffeting the global economy.

“The global economic outlook continues to be bleak,” RBI governor Shaktikanta Das said in a televised address.

Aggressive rate hikes and ominous commentary from other leading central banks was posing a “third major shock” to the world economy on the back of the pandemic and the Ukraine war, he added.

“The recent rate hikes and forward guidance about further big rate hikes have caused tightening of financial conditions, extreme volatility and risk aversion,” Das said.

Anuj Puri, Chairman – ANAROCK Group, said, “The 50 Bps hike by the RBI was expected, especially since no global economy has hinted towards any kind of moderation. Inflation continues to ravage almost all economies, and India is no exception. ANAROCK’s recent Consumer sentiment survey also highlighted that at least 61% respondents saw high inflation as a major concern for them, seriously impacting their disposable incomes.”

He added, “With this repo rate hike, home loans will get dearer soon. This could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments. The hike in home loan rates will be in addition to the other increasing costs such as inflationary trends of construction input costs. With the overall acquisition cost increasing further, developers will have to seriously consider doling out targeted offers and discounts to boost sales during the critical festive quarter.”

He said, “The silver lining is that only when the home loan interest rates breach the 9.5% mark will housing sales see a ‘High Impact’. If rates remain between 8.5-9%, the impact is expected to be moderate.”