The Reserve Bank of India Governor Shaktikanta Das has announced that the Monetary Policy Committee has decided to hike lending rates by 40 bps to 4.40 percent.
The MPC has also decided to remain accommodative while focusing on withdrawal and thus a reversal of the rate action in 2020 which saw 75 bps shaved off after the global economy went into turmoil after the COVID-19 pandemic struck.
Therefore, in line with this, the MPC has decided to increase the Cash Reserve Ratio (CRR) by 50 bps to 4.5 percent. According to CNBC-TV18 research, this hike will mean a withdrawal of around Rs 85,000 crore liquidity from the system.
“Liquidity conditions need to be modulated in line with policy stance, actions said Das adding, “MPC decided to hold an off-cycle meeting to reassess the inflation-growth dynamics. There is a collateral risk of inflated inflation for a long time.”
Subsequently, the standing deposit facility (SDF) stands adjusted to 4.15 percent and marginal standing facility (MSF) to 4.65 percent.
The RBI had kept its key lending rate at a record low, keeping the repo rate unchanged at 4 percent in the April monetary policy.
The Indian bond market has been under pressure following the announcement. The 10-year bond yield (6.54%, 2032) that the market tracks, has risen above 7.4 percent from the previous day’s close of 7.12 percent.
The markets were in the red ahead of the RBI presser and have continued their downward trajectory. Nifty 50 is down close to 350 points while the Sensex has tanked more than 1,150 points.
Meanwhile, the US Fed is expected to hike by 50 and then probably the Fed Chair is expected to signal another 50 bps in the next meeting.
(Edited by : Abhishek Jha)
First Published: IST