The Monetary Policy Committee (MPC), left repo rates unruffled, at 4 basis points for the 11th time in a row. A basis point is one out of a hundred percentage points. The policymakers unanimously voted to retain a 4% borrowing rate and hold an accommodative outlook. This means they could either go for a rate cut or hike in the future, depending on the performance of the economy.
According to a Reuters economist, the Reserve Bank of India will maintain its determination to upwardly alter interest rates for a minimum of four months. The economist who said that inflation was starting to get worrying pointed out that August is the earliest we can expect a rate hike.
India’s consumer prices rose to 6.1%, an eight-month high in February, with the outlook on food prices threatening to worsen amid global tensions. The rate has defied the RBI’s upper threshold of 6% since the beginning of the year, reports Pocket Option.
Consumer price break down:
- Inflation has been pushed up by among other factors, rising costs of food, footwear, and clothing. Food prices peaked at over 5.9%, while footwear and clothing gained an extra 8.9% in the last report. Consumers were also forced to part with 8.7% more on energy prices
- As fuel distributors pass on higher costs of crude oil to retailers, pump prices could be unfrozen over four months of stability pushing inflation much higher.
- These rising prices could cut consumption if left uncontrolled and eventually slow down what is now one of the world’s fastest-growing economies.
- Wholesale inflation which had moderated at 12% in January has already gone up, peaking at 13.11% according to the last release.
The Reserve bank has indicated that it’s focusing on a strategy that will keep rates as low as possible to stimulate economic growth, even as central banks around the world compete to raise borrowing rates. The Bank of England hiked interests from a base rate of 0.25% to 0.5% on 3rd February 2022. We also saw the Federal Reserve officials voting for rate hikes in a penciled six further revisions within 2022. This is the most aggressive the FED has been in over 10 years.
These widespread rate hikes are not just related to current inflation, but also to counter the unforeseen economic effects of Russia’s invasion of Ukraine.
At least 28 out of 40 respondents interviewed by Reuters in February expected that the RBI would raise rates at least once by the end of June. The latest poll ending 5th April showed that only 5 out of 50 participants were positive of a rate hike before the same month, while the rest had shifted their expectations on the same.
The conflict of thoughts among scholars and the public is whether inflation is getting out of hand or not. A top economist at Barclays India was quoted saying,
The conflict in Europe brings risks of higher inflation and slower growth. From a macroeconomic standpoint, India’s policymakers have experienced a narrowing of their policy options in the last few weeks.
India’s main bank is adamant that the uncertainty will not force it to tamper with the current inflation and growth policy yet. The policymaker has been clear that creating an environment for a durable economic recovery is the current priority.
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