Mumbai: Reserve Bank of India (RBI) on Wednesday raised the interest rate by 50 basis points to a two-year high of 4.9 percent as it doubled down to tame inflation that has surged in the last couple of months. The rate hike comes on the back of a 40 bps increase effected by RBI at an unscheduled meeting on May 4.
All the six members of the Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, unanimously voted for the latest rate hike. Consumer Price Index (CPI) based inflation, which RBI factors in while arriving at its monetary policy, galloped for the seventh straight month to touch an 8-year high of 7.79 percent in April.
The RBI retained its growth projection at 7.2 percent for the current fiscal on the back of improvement in urban demand and gradual recovery in rural India. Unveiling the third monetary policy for the current fiscal, RBI Governor Shaktikanta Das said the Indian economy remained resilient, and the central bank will continue to support growth.
The RBI expects growth in the first quarter of the current fiscal at 16.2 percent, which will taper to 4 percent by the fourth quarter. He, however, cautioned that there are risks from the ongoing Russia-Ukraine war. The central bank earlier in April slashed the GDP growth projection for 2022-23 to 7.2 percent from its earlier forecast of 7.8 percent.
On Tuesday, the World Bank cut India's economic growth forecast for the current fiscal to 7.5 percent as rising inflation, supply chain disruptions, and geopolitical tensions taper recovery. It was the second time that the World Bank has revised its GDP growth forecast for India in the current fiscal 2022-23 (April 2022 to March 2023). In April, it trimmed the forecast from 8.7 percent to 8 percent and now it is projected at 7.5 percent.
The GDP growth compares to an 8.7 percent expansion in the previous 2021-22 fiscal. India's economy grew by 4.1 percent in the January-March quarter of 2021-22. In addition to that, the RBI upped the inflation projection for the current fiscal to 6.7 percent from 5.7 percent forecast in April.
RBI Governor Shaktikanta Das said the upside risk to inflation persists and the recent spike in tomato prices would fuel food inflation. Also, high global crude oil prices would add to the upside pressure on inflation. The upward revision in inflation projection comes as domestic retail inflation has remained above RBI's comfort level of 6 per cent for four months in a row, mainly due to the Russia-Ukraine war which has impacted the prices of commodities across the globe.
In the bi-monthly monetary policy, Das upped the inflation projection for the ongoing fiscal to 6.7 per cent. It projected inflation to be 7.5 in June quarter (Q1) and 7.4 per cent in September quarter (Q2). Inflation is expected to come down to 6.2 per cent in December quarter (Q3) and further reduce to 5.8 per cent in March quarter (Q4) of this fiscal.
Das said normal south-west monsoon would boost kharif sowing and agri output. However, global geo-political situation remains fluid and commodity market remains on the edge. RBI, in its monetary policy in April, had projected inflation to be 5.7 per cent in the current fiscal, with 6.3 per cent in Q1; 5.8 per cent in Q2; 5.4 per cent in Q3 and 5.1 per cent in Q4.
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A rise in price across all items from fuel to vegetables and cooking oil pushed WPI or Wholesale Price Inflation to a record high of 15.08 per cent in April and retail inflation to a near eight-year high of 7.79 per cent. RBI has the mandate to keep inflation at 4 per cent with a bias of 2 per cent on either side.
Moreover, the Reserve Bank of India said that the central bank will ensure the availability of adequate liquidity to meet the productive requirements of the economy. "Going ahead, while normalising the pandemic related extraordinary liquidity accommodation over a multi-year time frame, the RBI will ensure availability of adequate liquidity to meet the productive requirements of the economy," Das said while announcing the monetary policy.
The RBI will also remain focused on orderly completion of the government's borrowing programme. The six-member Monetary Policy Committee (MPC) today voted unanimously to increase the policy repo rate by 50 basis points to 4.90 per cent with immediate effect. The RBI has also doubled the maximum loan amount that a cooperative bank can lend to an individual to up to Rs 1.40 crore in view of the surge in housing prices.
The guidelines governing the maximum permissible loan limits for cooperative lenders were last reviewed over a decade ago. RBI Governor Shaktikanta Das announced that urban cooperative banks will now be allowed to lend up to Rs 1.40 crore as against the previous cap of Rs 70 lakh, while rural cooperative banks can now lend up to Rs 75 lakh as against earlier cap of Rs 30 lakh.
Taking into account the increase in housing prices since the limits were last revised and considering the customer needs, it has been decided to increase the existing limits on individual housing loans by cooperative banks, Das said. Das, who made the announcement along with the other measures in the bi-monthly policy review, added that a detailed circular on the same will be issued separately.
The Governor said urban cooperative lenders are classified into tier-I and tier-II, and the maximum loan amount cap will be governed by how a bank is recognised. Rural cooperative banks include State Cooperative Banks and District Central Cooperative Banks, and their net worth will determine the maximum permissible loan limits, he said.
Those with a net worth of up to Rs 100 crore will now be able to lend up to Rs 50 lakh per individual housing loan as against the previous cap of Rs 20 lakh, while the others can give loans of up to Rs 75 lakh, Das said. In what can get a cheer to the developers, Das also announced that rural cooperative banks will now be permitted to lend to builders who have launched residential projects, which they are currently prohibited from.
Das said the decision has been taken considering the growing need for affordable housing and to realise their potential in providing credit facilities to the housing sector. He said the overall housing finance limit for rural cooperative banks is unchanged at 5 per cent, and the lenders will have to extend the Commercial Real Estate Residential Housing loans within the aggregate limit.
Meanwhile, the RBI has also decided to permit urban cooperative banks to allow doorstep banking services to help the elderly and differently-abled segments, Das said. (with Agency inputs)
