Reserve Bank of India hiked half percent interest rate

Reserve Bank of India hiked half percent interest rate

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The Reserve Bank of India increased the lending rate by 50 basis points at the pre-pandemic levels of 5.40 per cent. This recent hike is the third increase in a row to cultivate surging inflation which has stayed above the upper end from the target set by RBI.

With the latest hike, the repo rate or the short term lending rate at which banks borrow is crossed the pre-pandemic level of 5.15 per cent.

Reason for hike:

The monetary policy committee (MPC) hiked the key lending rate or the repo rate by 50 basis points (bps) to 5.40 per cent which is the highest since 2019 exactly after June retail inflation data which was recorded at 7 per cent.

This June retail inflation is well above from the RBI’s tolerance level of 2% to 6% medium-term target.

Monetary Policy Committee:

RBI Governor Shaktikanta Das is head the monetary policy committee in which the six members of the Monetary Policy Committee (MPC) has unanimously voted for the recent rate hike.

RBI Governor Shaktikanta Das considered in on the dilemma the central bank faces, with pressing economic concerns to be addressed.

Retail inflation:

Retail inflation based on the Consumer Price Index (CPI) has been registered at 7.01% in June. Inflation has been surpassing the RBI’s comfort level of 6 per cent since January this year.

RBI governor is believed that the trend might be continued for some period of time also.

Inflation based on the Wholesale Price Index (WPI) continued in double-digit for 15 months in a row. The Wholesale Price Index was registered at 15.18 per cent in June.

Trend in world economy:

The recent RBI action happened after the Bank of England’s raising rate by 50 basis points which is the biggest hike in 27 years, to 1.75 per cent.

Last month, the US Federal Reserve modified its second consecutive 0.75 percentage point interest rate increase, taking its benchmark rate to a range of 2.25-2.5 per cent.

Question & Answer:

Q1. The monetary policy committee hiked what basis points repo rate recently?

Ans. 0.50 basis point

Q2. What is the tolerance level of the Reserve Bank of India?

Ans. 2% to 6%

Q3. Who is the head of monetary policy committee?

Ans. RBI Governor (currently Shaktikanta Das)

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