New Delhi: The Reserve Bank has been more realistic in forecasting the inflation for the current financial year as it said the retail inflation, measured as the Consumer Price Index, will be above its comfort zone of 6% as its decision to hike the repo rate by another 50 basis points is being seen as a part of the coordinated action by the RBI and the Government to thwart the dangers of inflation, top bankers told ETV Bharat.
State Bank of India’s Chairman Dinesh Khara said The policy statement is a comprehensive assessment of uncertainties and is an affirmation of coordinated policy action by the Government and RBI to thwart the dangers of inflation.
'Uncertain times, unconventional measures'
“Uncertain times demand unconventional measures. Owing to persisting global uncertainties, RBI has hiked rates by 50 basis points and revised the inflation projection to 6.7 percent,” Khaira said in a statement sent to ETV Bharat.
In the second monetary policy committee meeting this year, the Reserve Bank raised the benchmark interbank lending rate by 50 basis points to 4.9%. Earlier the bank had raised the repo rate by 40 basis points in May this year. Atanu Kumar Das, CEO and Managing Director of Bank of India, said the policy announcement was on expected lines.
“It reflects the Central Banker’s continued focus on a non-disruptive trade-off between growth and price stability, in a calibrated manner,” Das said in a statement. The Reserve Bank of India is facing a difficult task of maintaining the growth momentum by keeping the interest rates low while maintaining the accommodative stance but at the same time it also needs to cut the excess liquidity in the market through policy actions to cool down the inflation which is two per cent above its legal mandate.
Realistic projection of inflation trajectory
Rajni Thakur, Chief Economist of RBL Bank says the monetary policy committee’s decisions announced this morning such as 50 basis point hike in policy rates, resetting inflation projections and no change in the Cash Reserve Ratio (CRR) were all broadly along the expected lines. She says with this policy announcement, which comes right after the unscheduled May rate hike, the RBI has opted to stay predictable this time and it will help soothe the market sentiments as earlier rate hike kind of spooked the market a bit.
Rajni Thakur, however, appreciated the RBI’s inflation projections for FY23 at 6.7% saying it is now more realistic in view of current geo-political uncertainties and their fall outs. “With multiple risks on price levels driven largely by external factors, the rate hikes will help anchor inflation expectations and impact the actual inflation outcome to a much lesser extent,” Thakur said in a statement sent to ETV Bharat.
She says that the policy makes it difficult to gauge a terminal rate level for the cycle, even though, continual rate hike expectations till pre-Covid levels have been firmed up by the fact that Monetary Policy stance has changed from ‘accommodative with focus on withdrawal of liquidity’ to ‘focus on withdrawal of accommodation’.
“We now expect a further rate hike of 50 bps in August, taking Repo rates higher than pre-Covid levels, followed by pause to re-access the macro-dynamics and hikes in smaller quantum thereafter pushing year end Repo-rates close to 6% levels,” added the banker.
