NEW DELHI – The Reserve Bank of India (RBI) announced that it is increasing a key interest rate as part of an effort to control inflation within the nation.
The move to hike the lending rate, or the repo rate, by 40 basis points (bps) from 4% to 4.40% comes after RBI did an evaluation on current economic situation.
RBI’s governor, Shaktikanta Das, stated that inflationary pressures are an aftermath of the Russia-Ukraine war which could be seen affecting nations over the globe.
According to Das, as the conflict drags on and further sanctions and retaliatory measures intensifies, volatility in commodities and financial markets will persist, along with supply disruptions and the worst of all is the persistent and spread of inflationary pressures which is becoming more acute as each day passes.
“Debt distress is on the rise in developing countries amidst capital outflows and depreciation of currencies. Recent data for gross domestic product (GDP) indicate that economic recovery has slowed globally,” he said.
Aside from that, the RBI has opted to drain liquidity from the banking system through increasing its cash reserve ratio (CRR), or the minimum amount of deposits held as a reserve with the central bank by 50 basis points to 4.5%.
The bank estimates that the withdrawal of liquidation via the CRR hike will be about 870 billion rupees or US$11.4 billion.
Das further stressed on the impacts external variables such as geopolitical concerns and high energy costs on the rising food prices in India.
“Inflation-sensitive products like edible oils are facing shortages as a result of the turmoils in Europe along with export limits imposed by major manufacturers. Furthermore, the hike in fertiliser prices and other input costs are directly impacting food prices in India,” Das explained.
Additionally, he also stated that the substantial increase in inflation in March this year was caused by increasing food prices. India marks its inflation rate at 7% in March 2022.
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