The Reserve Bank’s rate-setting panel will begin its three-day deliberations on Monday to decide the next monetary policy in the backdrop of high inflationary concerns and evolving geo-political situation. Reserve Bank Governor Shaktikanta Das headed six-member Monetary Policy Committee (MPC) is scheduled to announce the policy resolution on Wednesday,8 June.
It is widely anticipated that the MPC is likely to increase the benchmark lending rate in quick succession in its forthcoming monetary policy review on Wednesday, a hint for which has already been given by Governor Shaktikanta Das with inflation showing no signs of abatement.
On May 4, the Reserve Bank of India (RBI) hiked rates by 0.40 per cent, and Governor Shaktikanta Das has already called a rate hike at the forthcoming review as a “no brainer” given the pressure to maintain its core mandate of inflation in the targeted band of under 6 per cent.
In the first monetary policy committee meeting of the current financial year held during April 6-8, the RBI had kept key rates unchanged. However, due to the evolving inflation-growth dynamics especially in view of the impact of the Russia-Ukraine conflict, the monetary policy committee held an off-cycle meeting on 2nd and 4th May 2022 in which it decided to hike the policy repo rate by 40 basis points to 4.40 per cent. This was the first increase in the policy repo rate since May 2020.
In the off-cycle monetary policy review last month, the central bank also hiked Cash Reserve Ratio (CRR) by 50 basis points to 4 per cent. With the 50 basis points hike in CRR, the RBI sucked out ₹87,000 crore liquidity from the system.
By the end of the current financial year, the RBI is likely to hike the policy repo rate to 5.65 per cent from the current 4.4 per cent.
The retail inflation, which RBI factors in while arriving at its monetary policy, galloped for a seventh straight month to touch an 8-year high of 7.79 per cent in April, mainly on account of surging commodity prices, including fuel, due to ongoing Russia-Ukraine war.
The wholesale price-based inflation has remained in double digits for 13 months and touched a record high of 15.08 per cent in April.
Recently in a TV interview, the governor said that the “expectation of rate hike is a no-brainer, there will be some increase in the repo rates, but by how much I will not be able to tell now but to say that 5.15 may not be very accurate”.