RBI Increases Repo Rate by 40 Basis Points: Key Highlights

The Reserve Bank of India (RBI) on Wednesday raised its key lending rate (also known as the repo rate) by 40 basis points with immediate effect. The central bank also increased the cash reserve ratio (CRR) by 50 basis points. The decision was made by the monetary policy committee (MPC) in its off-cycle meeting held May 2-4 with the central board.

RBI Governor Shaktikanta Das made a surprise announcement on Wednesday of hiking repo rates by 40 basis points and taking it to 4.40%. He cited increasing inflation, geopolitical tensions and spiralling commodity prices as key reasons behind the move.

Here are the key highlights of RBI Governor's address

• Shaktikanta Das, RBI Governor, said that the decision was taken because of rising inflation, high crude oil prices, geopolitical tensions, and a shortage of commodities globally. All these factors have impacted the Indian economy.
• He said that the MPC judged that the ongoing inflation outlook requires an appropriate and timely response via resolute and calibrated steps for ensuring that second-round effects of the supply-side shocks on the Indian economy are controlled and long-term inflation expectations are firmly anchored".
• The RBI Governor noted in his address that food Inflation is expected to remain high as spillover by global wheat shortages is impacting the domestic wheat prices, even so domestic supplies are comfortable.
• Amidst the Russia-Ukraine war, the price for edible oil may firm up as major oil producing countries have forced export restrictions.
• Das said that the decision of increasing the repo rate today might be seen as a reversal of rate action of May 2020. RBI had set out a stance of withdrawal of accommodation last month and today's action needs to be seen in line with that action.
• Das emphasised that the monetary policy action is focused at containing inflation spike and re-anchoring inflation expectations. He also added that the high inflation is known as detrimental to growth.
• He said that most alarmingly, persistent & spreading inflationary pressures are turning more profound with every passing day.
• Since August 2018 this was the first hike in policy rate, which will result in increasing the cost of borrowing for corporates and individuals.
• An off-cycle meeting was held by the monetary policy committee on May 2 to 4 for reassessment of evolving inflation-growth dynamics.
• RBI also decided to be accommodative while focussing on the withdrawal of accommodation for ensuring inflation remains within target going forwar.