RBI’s Three-Day Monetary Policy Meeting Begins Today, Another Repo Rate Hike Likely

Like several other central banks, the main focus of the RBI during the three-day-long Monetary Policy Meeting will again remain on containing high inflation

Mumbai: The monetary policy committee of the Reserve Bank of India is all set for its bi-monthly review meeting starting today.

Like several other central banks, the main focus of the RBI during the three-day-long meet will again remain on containing high inflation. The MPC is a six-member body that is mandated to determine the policy interest rates required to achieve the inflation target while keeping in mind the objective of economic growth. As of now, this committee meets at least six times in a financial year, i.e every two months.

In its previous review meeting in early August, the monetary policy committee had unanimously decided to raise the repo rate by 50 basis points to 5.40 per cent in order to contain the persistently high inflation. The hike took the repo rate above pre-pandemic levels of 5.15 per cent.

Raising interest typically suppresses demand in the economy, thereby helping inflation to decline.
The committee had in its previous meeting decided to remain focused on the “withdrawal of accommodation” stance to ensure that inflation remains within the target while supporting growth.
In line with the global trend of monetary policy tightening to cool off inflation, the RBI has so far hiked the key repo rates — the rate at which the central bank of a country lends money to commercial banks — by 140 basis points.

The MPC reiterated that retail inflation is projected to remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23.

Global investment and financial services firm Morgan Stanley recently said the Reserve Bank of India is likely to raise repo rates by another 50 basis points with an unchanged policy stance.
According to SBI Research, the RBI is expected to raise interest rates in the range of 35-50 basis points.

“We believe the RBI is likely to raise rates in September policy and it could be a close call between 35 and 50 basis points,” it had said.

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Inflation in India:

India’s retail inflation rose to 7 per cent in August from 6.71 per cent the previous month due to a sharp rise in food prices, as per official data. Retail inflation exceeded the Reserve Bank of India’s tolerance band for the eighth consecutive month. With the headline inflation coming above 6 per cent for the eighth month in a row, the RBI is on a brink of failing to meet its inflation mandate.

The RBI is mandated to keep inflation in a range of 2-6 per cent. The RBI is deemed to have failed in its mandate if the average inflation remains outside the 2-6 per cent band for three consecutive quarters.

Further, India’s wholesale inflation declined during the month of August to 12.41 per cent from 13.93 per cent the previous month but continues to remain in double digits, official data showed. The wholesale inflation has been in the double-digit for 17 months in a row now.

(Except for the headline, this story has not been edited by HW News staff and is published from a syndicated feed.)

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