RBI Hikes Key Lending Rate To 3-Year-High Of 5.9%, Fourth Increase In A Row
The Reserve Bank of India increased its benchmark lending rate by 50 basis points to 5.90%, a three-year high spurred by high inflation, aggressive monetary policies worldwide, and market volatility. The monetary policy committee (MPC), which is made up of three members from the RBI and three outside members, hiked the key lending rate, also known as the repo rate, by 0.5% to 5.90% with a five out of six majority.
After a raise of 40 basis points in May and 50 basis points each in June and August, this is the fourth consecutive rate hike. Since May, the RBI has hiked the benchmark rate a total of 1.90 percentage points to reduce domestic retail inflation, which has consistently exceeded the central bank’s tolerance level of 6 percentage points each month.
“Repo policy rate hike of 50 bps is in line with our expectations. Given the global adverse conditions, we remain wary on the pressure on (the) INR and hence the need for continued rate hikes,” Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, told Reuters.
“We expect the MPC to hike 35 bps in the December policy. However, with inflation expected to fall within the 6 per cent threshold in 4QFY23, we expect the MPC to probably pause and assess the lagged impact of monetary tightening,” she added.
A 50 basis point increase was also made to the rates for the standing deposit facility and the marginal standing facility, bringing them to 5.65 percent and 6.15 percent, respectively.
RBI Governor Shaktikanta Das stated that “there is a 67 percent decline in forex reserve this year due to change in valuation of the foreign exchange rate” in response to the RBI’s huge withdrawals from the nation’s foreign exchange reserves to stop the currency’s depreciation against the soaring US dollar.
The import cover of the nation has fallen significantly by over $100 billion from its peak late last year, but the RBI’s tone suggests they were not concerned.
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