RBI Monetary Policy Committee hikes the repo rate by 50 bps to 4.9 percent to tame inflation which it forecasts at 6.7 percent versus earlier projection of 5.7 percent for FY23
The six-member rate-setting panel has cautioned that inflation is likely to remain above the upper tolerance band of 6 per cent until December.
Image: Indranil Mukherjee / AFP
In his concluding remarks, quoting Mahatma Gandhi once again, Reserve Bank Governor Shaktikanta Das alluded to how the central bank needs to â€make the boldest effort to sail full steam ahead’ to â€overtake the storm that is about to burst’. Is the â€storm’ a metaphor for stagflation? Or an economic recession?
But certainly, the main headwind is the relentless surge in food, energy, and commodity prices. “The war has led to globalisation of inflation,” Das said on June 8. “The war in Europe is lingering and we are facing newer challenges each passing day.”
In this turbulent backdrop, in its June policy meet, the Reserve Bank’s Monetary Policy Committee unanimously voted to hike the repo rate by 50 basis points to 4.9 percent as it focussed on withdrawal of accommodation. The cash reserve ratio at 4.5 percent was not raised. Although the RBI did not alter its GDP forecast of 7.2 percent, it sharply revised its inflation forecast to 6.7 percent from 5.7 percent for the current fiscal year.
The six-member rate-setting panel has cautioned that inflation is likely to remain above the upper tolerance band of 6 percent until December.
“The upside risks to inflation as highlighted in the April and May 2022 policies have materialised earlier than anticipated—both in terms of timing and magnitude. Inflationary pressures have become broadbased and remain largely driven by adverse supply shocks. There are growing signs of a higher pass-through of input costs to selling prices,” Das further said.