RBI Hikes Repo Rate By 40bps To Control Rising Inflation Rate

RBI, the central bank of India has declared a 40 bps hike in the repo rate. RBI Governor Shaktikanta Das has announced this on May 4. The Monetary Policy Committee (MPC) has decided on this in an off-cycle meeting. The major reason behind the decision to a repo rate hike is inflation, as the central bank thinks. With this hike, the present repo rate is standing at 4.40%.

Inflation in India is caused by the recent upsurge in crude oil prices and supply-chain disruptions. The Covid pandemic has only accelerated the rate of inflation in the country. India's retail inflation rate increased to 6.95% in March.

Shaktikanta Das sounded concerned about the volatile oil rate in the global market which has crossed $100/barrel. Additionally, the Russia-Ukraine geopolitical uncertainties have triggered the inflation rate in the global economic picture. Most Asian and European countries are worried about it. The USA is dealing with a 40 years high inflation rate now. India is not an exception in this situation. The shortage in edible oil has also concerned RBI Governor. Hence, the central bank has decided to hike the repo rate, the key lending rate for banks in the country. It is expected to crunch liquidity in the economy, which will keep the inflation rate under control.

This decision from the RBI came just when the US Federal Reserve, the US central bank is holding its policy meeting, and is expected to hike its interest rate by 50 bps to restrict the rising inflation rate. The equity markets in India have reacted negatively after RBI's decision and showing a much bearish trend today.