EMIs to go up: RBI hikes repo rate by 50 bps to check soaring inflation

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NEW DELHI: The Reserve Bank of India (RBI) on Wednesday hiked key repo rate by 50 basis points (bps) to 4.90 per cent in a bid to tame the soaring inflation in the country.
This the second straight hike by the central bank in 2 months and is expected to hike borrowing costs for corporates and individuals.
Amid the rising inflationary pressure in India, the RBI had in an off-cycle move hiked repo rate by 40 bps in a surprise meet of the MPC in May.

The standing deposit facility (SDF) rate and the marginal standing facility (MSF) rate were adjusted higher by the same quantum to 4.65 per cent and 5.15 per cent, respectively.
The government has tasked RBI to ensure CPI-based inflation remains at 4 per cent with a margin of 2 per cent on either side.
It mainly factors in consumer price index (CPI) based inflation while arriving at its monetary policy decision.
All six members of the Monetary Policy Committee (MPC), headed by RBI governor Shaktikanta Das, unanimously voted for the latest rate hike.

Inflation forecast raised
The RBI also raised inflation forecast for the current financial year to 6.7 per cent from its earlier projection of 5.7 per cent.
As per the new projection, inflation is likely to remain above the central bank's upper tolerance limit of 6 per cent for the first three quarters of 2022-23.
Inflation is projected to remain 7.5 per cent in the first quarter of the current financial year. In the second quarter, it is projected at 7.4 per cent. For the third quarter, it is projected at 6.2 per cent.
"It may be noted that around 75 per cent of the increase in inflation projections can be attributed to the food group. Further, the baseline inflation projection of 6.7 per cent for 2022-23 does not take into account the impact of monetary policy actions taken today," RBI governor Shaktikanta Das said in the monetary policy statement.
Retail inflation accelerated to an eight-year high of 7.79 per cent in April, remaining above the central bank's tolerance limit for a 4th month in a row, and is likely to stay elevated.

With the assumption of a normal monsoon, in 2022 and the average crude oil price in the Indian basket of 105 dollars per barrel, the RBI Governor said inflation is now projected at 6.7 per cent in 2022-23.
"Limits for individual housing loans extended by urban cooperative banks and rural cooperative banks, last fixed in 2011 and 2009 respectively, being revised upwards by over 100 per cent taking into account increase in house prices. It'll facilitate a better flow of credit to the housing sector," he said.
Quick Edit: RBI signals that it will fail to meet its statutory obligations under inflation targeting regime
GDP forecast retained
The Reserve Bank retained its GDP growth forecast at 7.2 for the current fiscal but cautioned against negative spillovers of geopolitical tensions and a slowdown in the global economy.
Announcing the third monetary policy of 2022-23, RBI Governor Shaktikanta Das said the available information for April and May 2022 indicates that the recovery in domestic economic activity remains firm, with growth impulses getting increasingly broad-based.
Manufacturing and services purchasing managers' indices (PMIs) for May point towards further expansion of activity.
Das noted that the negative spillovers from geopolitical tensions; elevated international commodity prices; rising input costs; tightening of global financial conditions; and a slowdown in the world economy continue to weigh on the outlook.
"Taking all these factors into consideration, the real GDP growth for 2022-23 is retained at 7.2 per cent, with Q1 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 per cent; and Q4 at 4.0 per cent, with risks broadly balanced," the governor said.
The central bank earlier in April slashed the GDP growth projection for 2022-23 to 7.2 per cent from its earlier forecast of 7.8 per cent.
Citing the provisional estimates released by the National Statistical Office on May 31, Das said India's GDP growth ins 2021-22 is estimated at 8.7 per cent which has exceeded the pre-pandemic, that is, 2019-20 level.

Credit cards to be linked with UPI platform
RBI allowed credit cards to be linked with the unified payments interface (UPI), which will enable more people to make payments using the popular platform.
At present, UPI facilitates transactions by linking savings or current accounts through users' debit cards.

"…it is proposed to allow linking of credit cards to UPI," Shaktikanta Das said while announcing the regulatory moves, along with the bi-monthly policy review.
He said that to start with Rupay credit cards issued by the RBI-promoted National Payments Corporation of India (NPCI) will be enabled with this facility, and the facility will be made available after system developments.
'Will ensure availability of adequate liquidity'
Shaktikanta Das said 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.
(With inputs from agencies)
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