The Reserve Bank of India hikes its key lending rate by 50 basis points to 5.40 percent, the highest since 2019 and for the third time since the beginning of the current fiscal year.
The Reserve Bank of India's rate-setting panel on Wednesday began its three-day deliberations on the next bi-monthly monetary policy.
The central bank already announced a gradually withdrawal of its accommodative monetary policy stance and that it was ready to do whatever it takes to stabilise inflation and the rupee.
RBI Monetary Policy Highlights:
- Bankers have welcomed the front-loading of rate hikes by the RBI and changing the accommodative stance to resolutely bring inflation under control and help prop up the falling rupee.
- The Reserve Bank on Friday raised the key interest rate by 50 basis points to 5.40 per cent -- the third straight increase since May. With the latest hike, the repo rate or the short term lending rate at which banks borrow has crossed the pre-pandemic level of 5.15 per cent.
- Dinesh Khara, chairman of the nation's largest lender State Bank of India (SBI), said the policy reaffirms the commitment to bring inflation down further and ensure financial stability in the markets.
- The RBI, in harmonising key measures, has ensured that the economy remains cushioned to the maximum extent from the impact of inflation in everyday lives by ensuring broad-based participation in G-Secs and the forex market.
- Non-resident Indians (NRIs) will soon be able to pay utility bills and other recurring payments like fees using the Bharat Bill Payment System (BBPS), the Reserve Bank announced on Friday.
- The RBI made it clear that the move is not driven by the need to attract more remittances at a time when the domestic currency is under pressure, nor it is the result of its efforts to minimise the spreads made by banks while converting currency.
- Interest rate sensitive bank, realty and auto stocks ended on a mixed note on Friday, on a day when the RBI raised the key interest rate by 50 basis points.
- Among bank stocks, ICICI Bank climbed 2.26 per cent, AU Small Finance Bank advanced 1.66 per cent, Axis Bank (0.90 per cent) and Federal Bank (0.88 per cent).
- However, Bandhan Bank declined 1.70 per cent, IndusInd Bank fell 1.30 per cent, Bank Of Baroda (0.59 per cent), State Bank of India (0.42 per cent), HDFC Bank (0.27 per cent) and Kotak Mahindra Bank (0.08 per cent).
- The BSE bank index ended 0.47 per cent higher at 43,550.81.
- The RBI's decision to hike repo rate is likely to have an affect on housing sales, especially in affordable and mid-income categories, according to real estate developers and consultants.
- The RBI's decision to raise the benchmark lending rate by 50 basis points to 5.40 per cent will make home loans costlier, and thus reducing affordability of prospective homebuyers, they added.
- However, industry experts feel that impact on sales will be short term as fundamentals of housing market are strong. Some developers are of the view that home loan rates are in comfortable zone and expects housing demand to sustain during the festive season.
- RBI Governor Shaktikanta Das on Friday said banks cannot perennially rely on the central bank's money to support credit offtake and they need to mobilise more deposits to aid credit growth.
- He said banks have already started to pass on the hike in repo rates to their depositors and the trend is expected to continue.
- "When there is a credit offtake, banks can sustain and support that credit offtake only if they have higher deposits. They cannot be relying on the central bank money on a perennial basis to support credit offtake ... they have to mobilise their own resources and funds," Mr Das told reporters during the post policy meeting.
The Reserve Bank has adopted an aggressive stance on inflation and may go in for more hikes in the benchmark interest rate in coming months, say experts. Read more
- Home, auto and other loan EMIs are set to rise further after RBI on Friday raised the key interest rate by 50 basis points, the third straight increase since May in an effort to cool stubbornly high inflation.
- The increase in lending rate or the repurchase rate (repo) by 50 bps to 5.40 per cent is 25 bps higher than the pre-pandemic repo level.
- Reserve Bank of India (RBI) Governor Shaktikanta Das signalled that the second straight half-point hike wasn't the end of the rate tightening regime and more may come to tame inflation that has for six months stayed above the comfort zone of 6 per cent.
- The central bank however did not revise its existing economic growth or inflation forecast despite indications of a global slowdown, recessionary conditions in the developed economies, and the moderation already witnessed in commodity prices.
- The Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said 50 basis points or 0.50 per cent hike in policy rates has become a new normal for the central banks across the world.
- Mr Das was reacting on the RBI Monetary Policy Committee (MPC) decision to hike the policy repo rate by 0.50 per cent.
- "If you look all around, 50 basis points has become the new normal and large number of central banks are now hiking by 75 to 100 basis points," Mr Das said while explaining the rationale behind 50 basis points hike in policy rates by the RBI.
- RBI Governor said the other central banks have been far more aggressive than the RBI in hiking policy rates.
- Housing sales are likely to be hit, especially in affordable and mid-income categories, following the RBI's decision to hike repo rate, according to real estate developers and consultants.
- However, the impact of RBI's decision to raise the benchmark lending rate by 50 basis points to 5.40 per cent is expected to be for a short term, they added.
- This is the third consecutive rate hike after a 40 basis points and 50 basis points increase in May and June, respectively.
- In all, the RBI has raised benchmark lending rate by 1.40 percentage points since May this year.
- The Reserve Bank on Friday decided to expand the scope of Internal Ombudsman framework by including Credit Information Companies (CICs) with a view to strengthening grievance redressal system.
- The Reserve Bank-Integrated Ombudsman Scheme (RB-IOS) has improved the customer grievance redressal mechanism.
- The turnaround time of grievance redressal under RB-IOS has declined considerably, RBI said in Statement on Developmental and Regulatory Policies.
- "With a view to strengthen the internal grievance redress by CICs themselves, it has been decided to mandate CICs to have their own Internal Ombudsman (IO) framework," RBI Governor Shaktikanta Das said after unveiling the bi-monthly monetary policy.
- Reserve Bank of India Governor Shaktikanta Das on Friday said the country's economy is an island of stability despite two Black Swan events and multiple shocks.
- "In an ocean of high turbulence and uncertainty, Indian economy is an island of macroeconomic and financial stability," Mr Das told reporters during the post policy press conference.
- He said the financial stability, macroeconomic stability and resilience of growth is being witnessed despite two Black Swan events happening one after the other and multiple shocks.
- Generally, a Black Swan event refers to an unpredictable event that has negative consequences.
- Mr Das did not list out the two Black Swan events that he referred to.
- In recent times, the coronavirus pandemic and the Russia-Ukraine war have significantly impacted the global economy.
- The depreciation of the Indian rupee is more on account of the appreciation of the US dollar rather than weakness in macroeconomic fundamentals of the Indian economy as the domestic currency is faring much better than several other currencies, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Monday.
- "Market interventions by the RBI have helped in containing volatility and ensuring the orderly movement of the rupee. We remain watchful and focused on maintaining the stability of the Indian rupee," Mr Das said while announcing the outcomes of the latest monetary policy meeting.
- During the current financial year, the US dollar index has appreciated by 8 per cent against a basket of major currencies, while the Indian rupee has moved in a relatively orderly fashion depreciating by 4.7 per cent.
- Indian economy is an island of stability despite two Black Swan events and multiple shocks
- Inflation has peaked and will moderate, but is at unacceptably high levels
- Current account deficit will be manageable, RBI has the ability to manage the gap
- Monetary policy will be calibrated, measured and nimble from here on
- The monetary policy committee decided to raise the key repo rate to 5.40 per cent to tamp stubbornly high inflation, but we remain optimistic about domestic growth.
The Reserve Bank of India (RBI) on Friday raised the benchmark lending rate by 50 basis points to 5.40 per cent to tame inflation.
Following are the highlights of the RBI's fourth monetary policy review of fiscal year 2022-23 announced by Governor Shaktikanta Das:
- Key short-term lending rate (repo) raised by 50 basis points (bps) to 5.4 per cent; third consecutive hike
- In all, 140 bps hike in repo since May 2022 to check inflation
- GDP growth projection for 2022-23 retained at 7.2 per cent (pc).
- GDP growth projection: Q1 at 16.2 pc; Q2 at 6.2 pc; Q3 at 4.1 pc; and Q4 at 4 pc
- Real GDP growth for Q1:2023-24 projected at 6.7 per cent
- Domestic economic activity exhibiting signs of broadening
- Retail inflation projection too retained at 6.7 pc for 2022-23
- Inflation projection: Q2 at 7.1 pc; Q3 at 6.4 pc; and Q4 at 5.8 pc; Q1:2023-24 at 5 pc
- India witnessed large portfolio outflows of USD 13.3 billion in FY23 up to August 3
- Financial sector well capitalised and sound
- India's foreign exchange reserves provide insurance against global spillovers
- Monetary Policy Committee decides to remain focused on withdrawal of accommodative stance to check inflation
- Depreciation of rupee more on account of appreciation of US dollar rather than weakness in macroeconomic fundamentals of the Indian economy
- RBI to remain watchful and focused on maintaining stability of rupee
- Rupee depreciated by 4.7 pc against US dollar this fiscal year till August 4
- India's foreign exchange reserves remain fourth largest globally
- Mechanism to be activated to allow NRIs to use Bharat Bill Payment System for payments of utility and education on behalf of their families in India
- Next meeting of rate-setting panel scheduled for September 28-30, 2022.
The Reserve Bank of India's key policy repo rate was raised by 50 basis points on Friday, the third increase in as many months to cool stubbornly high inflation.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, Mumbai
"The MPC's decisions have been in line with our expectations. Given the increasing external sector imbalances and global uncertainties, the need for front-loaded action was imperative. We continue to see a 5.75% repo rate by December 2022."
Garima Kapoor, Economist, Institutional Equities, Elara Capital, Mumbai
"To rein in inflationary pressures and anchor inflation expectations, the MPC hiked the repo rate by 50 bps and retained its stance on withdrawal of accommodation."
Nikhil Gupta, Chief Economist at MOFSL group
The RBI hikes the repo rate by 50bp to 5.4%, more than the consensus (5.25%) and our expectation (5.15%). Further, there was no change in the stance or any relief in the Governor's statement, indicating a posible pause in the next policy. The rate decision was also taken unanimously today.
Aurodeep Nandi, India Economist and Vice President at Nomura
The RBI's 50bp hike was largely in line with market expectations, that was divided between it and a 35bp hike. Very importantly, with the RBI retaining the policy stance of "withdrawal of accommodation", the implicit message is that rates are yet to reach neutral territory, and that more rate hikes are warranted - a view that we agree with. The RBI continues to signal that all options are on the table, which is a prudent strategy given the elevated levels of uncertainties on both, growth as well as inflation."
Acuite Ratings & Research comments on RBI MPC Aug 5, 2022
The RBI continued to sound relatively hawkish while announcing a hike of 50 bps which is the third hike in the current cycle, aggregating to 140 bps. This has taken the repo rate to 5.40%, 25 bps higher than the pre-pandemic repo level. While a rate hike was given in the current context, it has been slightly higher than our expectations although consistent with the market expectation of front loading.
What is noteworthy is that the central bank has not revised its existing growth or inflation forecasts despite indications of a global slowdown, recessionary conditions in the developed economies, and the moderation already witnessed in commodity prices. Possibly, it would like to go through more data points over the next two months before reviewing these forecasts. At this point, the central bank believes that India's growth in the current year would be largely resilient with the mitigation of risks of a monsoon failure and a healthy pickup in rural demand.
While we await the inflation print for Q2FY23, we believe that rate hikes going ahead will be moderate and there can even be a pause if the CPI data throws up figures nearer to 6.0% over the next 2-3 months. For now, however, one can expect further deposit and lending rate hikes by banks, given the improved credit demand in the economy
- IMF has revised downwards economic growth projection and expressed risk of recession
- Indian economy has been grappling with high inflation
- India facing USD 13.3 billion capital outflow in last few months
- Financial sector remains well capitalised; India's forex reserves provide insurance against global spillovers
- MPC takes unanimous decision to raise benchmark lending rate by 50 bps to 5.40 per cent
- MPC decides to focus on withdrawal of accommodative policy stance to check inflation
- Consumer price inflation remains uncomfortably high; inflation expected to remain above 6 per cent
- Bank credit growth has accelerated 14 pc as against 5.5 per cent year ago
- Domestic economic activity showing signs of broadening; rural demand shows mix trend
- RBI retains its economic growth projection at 7.2 per cent for current fiscal
- Indian economy faces headwinds from global factors like geo-political risks
- Edible oil prices likely to soften further
- Inflation projection for FY23 retained at 6.7% on assumption of a normal monsoon and crude oil at $105 per barrel
- Rise in term deposit rates should increase liquidity for financial sector
- Surplus liquidity in the banking system has come down to Rs 3.8 lakh crore, from Rs 6.7 lakh crore in April-May
- Rupee has moved in orderly fashion, depreciating 4.7 pc till Aug 4; RBI remains watchful of INR movement
- FPIs after remaining in exit mode in first quarter have turned positive in July
- The rupee gains sharply early on Friday, reversing a sharp fall in the previous session, ahead of the Reserve Bank of India's policy announcement.
- Bloomberg quoted the rupee at 78.9713 against the greenback, a gain of 50 paise from its previous close of 79.4713.
- PTI reported that the rupee rose 46 paise to 78.94 against the US dollar in early trade.
- The dollar struggled to gain a footing on Friday after falling by its sharpest pace in two weeks, as investors remained on tenterhooks ahead of the widely anticipated US jobs data and amid growing worries about a recession.
- The US dollar index, which measures the greenback against a basket of currencies, fell 0.68 per cent overnight, the largest fall since July 19, and last traded 105.79.
The Reserve Bank of India will likely hike interest rates for the third time since the current fiscal year began in April. But the central bank's dilemma has multiplied, with pressing economic risks becoming a deeper concern for policymakers. Read more
- The rupee is expected to strengthen against the U.S. dollar at open on Friday as oil prices extended their recent slide to slip to their lowest since February.
- The Reserve Bank of India (RBI) policy decision will set the intraday direction for the rupee, traders said.
- The rupee will likely open at 79.15-79.20 per dollar, up from 79.47 in the previous session.
- Brent crude on Thursday fell 2.8%, taking its losses this month to over 14%. Oil prices have come under pressure amid concerns over demand, pushing Brent crude to its lowest since before Russia's February invasion of Ukraine.
- "The ongoing correction in oil prices will be a major relief for the rupee. Specially right now, when worries over the trade deficit are significant," a trader at a private sector bank said.
- "Oil will help rupee to open higher and from there it will be down to what the RBI does."
- India's central-bank watchers agree that interest rates will be raised to pre-pandemic levels on Friday, yet they are split on the size of the increase aimed at fighting inflation and propping up a weak currency.
- Sixteen of 36 economists surveyed by Bloomberg see the Reserve Bank of India's six-member monetary policy committee lifting the repurchase rate by half-point to 5.40%, a level last seen in August 2019.
- Fourteen of them predict a 35-basis point hike, five a quarter-point action and one for a 40 basis-point increase -- with any of these moves seen enough to return borrowing cost to late 2019 levels.
- With Federal Reserve officials signaling a pause is out of the question until they see evidence of inflation easing, RBI watchers will be closely monitoring Governor Shaktikanta Das's remarks for any guidance on the pace and length of the monetary tightening cycle as he seeks to ensure a "soft landing" for the economy.
- The central bank has increased the key rate by 90 basis points since May, including a half-point hike in June.
- The rupee may decline to a new lifetime low versus the U.S. dollar if the Reserve Bank of India on Friday decides to opt for a smaller rate hike, a trader said.
- The RBI is widely expected to raise the repo rate as it continues its battle to control inflation.
- Economists, however, differ on the size of the rate hike that the RBI will deliver as the central banks aims to strike the right balance between inflation and growth.
- The estimates range from 25-basis points rate hike to 50-basis points.
- "We think there is decent chance that rupee will see a record low tomorrow," a trader at a Mumbai-based private sector bank said. "A 50-basis hike will not do much for the rupee, while anything less than that will take the rupee well below 80."
- The Reserve Bank of India is expected to raise interest rates today for the third time since the beginning of the current financial year, to bring down inflationary above the upper threshold of the central bank's target since January.
- The focus shifts to the RBI's growth and inflation outlook and the tone of the monetary policy path.
- The Monetary Policy Committee (MPC) meeting started on Wednesday abd the RBI Governor Shaktikanta Das is scheduled to announce the Monetary Policy Committee decisions at 10 am.
- The RBI had said, it was removing the policies introduced as COVID-support, and if the central bank hikes by a minimum of 25 basis points then interest rates will rise to pre-pandemic level.
- While the hike in policy interest rates is almost certain, analysts and economists have different opinions on the extent of the rate hike.
- It varies between 25 basis points to 50 basis points.