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To Control Inflation, RBI Withdraws Accommodation Policy, CPI Inflation At 7%, Hikes Repo Rate By 50bps

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The RBI Monetary Policy Committee (MPC) at its meeting, on August 5, 2022 has decided to hike the policy repo rate by 50 basis points to 5.40% with immediate effect. The MPC remains focused on the withdrawal of accommodation policy to ensure that inflation remains within the target going forward, however not affecting the growth rate. The RBI objects to achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%.

 
To Control Inflation, RBI Withdraws Accommodation Policy, CPI Inflation At 7%,

According to the RBI statement, India's CPI inflation has eased to 7.0% (year-on-year) during May-June 2022 from 7.8% in April, although it persists above the upper tolerance band. India's food inflation has registered some moderation, as the price softening of edible oil, and deepening deflation in pulses and eggs. However, fuel inflation was again recorded at double digits in the month of June due to the rise in LPG and kerosene prices. But, core inflation (CPI excluding food and fuel) has moderated in May-June, because of the reduction in excise duties on petrol and diesel pump prices, effected on May 22, 2022.

RBI Governor Shaktikanta Das today mentioned, "Spillovers from geopolitical shocks are imparting considerable uncertainty to the inflation trajectory. More recently, food and metal prices have come off their peaks. International crude oil prices have eased in recent weeks but remain elevated and volatile on supply concerns even as the global demand outlook is weakening. The appreciation of the US dollar can feed into imported inflation pressures. Rising Kharif sowing augurs well for the domestic food price outlook. The shortfall in paddy sowing, however, needs to be watched closely, although stocks of rice are well above the buffer norms. Firms polled in the Reserve Bank's enterprise surveys expect input cost pressures to soften across sectors in H2. Cost pressures are, however, expected to get increasingly transmitted to output prices across manufacturing and services sectors."

On the other hand, Cyrus Mody, Managing Partner, Viceroy properties LLP stated, "The RBI has hiked repo rates by 50 bps, this move is anticipated as the central bank prioritised taming inflation over boosting the growth rate. Further, this third consecutive rate hike by the RBI will put some pressure on home loan rates. What is encouraging is the system liquidity of nearly Rs. 3.8 lakh crores which will ensure the availability of loans for retail as well as corporate requirements. The interest rates and the economic matrix are now back to pre-covid levels. There will be enough demand for quality projects developed by reputed names. Economic activity picking up augurs well for the real estate sector given the close alignment between both."

Read more about: inflation cpi repo rate rbi mpc
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