A. Harikumar
Mumbai, May 4. The Reserve Bank of India today raised Repo Rate by 40 basis points to 4.4 % from 4 % after two years. The cash reserve ratio (CRR) was raised by 50 basis points from 4 % to 4.5 %. This was announced by RBI governor Shaktikanta Das who explained the decisions of Monetary Policy Committee which concluded today.
The hike in repo rate and CRR means finally, the RBI has decided that the taming the inflation in the country which is at an 18 month high is more important that maintaining high growth rate for which low interest rates are preferable.
The raising of repo rate as well as CRR means loans will become more costly and the money in circulation will come down. It means new investments will slow down as loans become costlier, but rising prices of commodities will be tamed.
Repo Rate is the rate at which the Central Bank ie. RBI lends money to commercial banks. CRR is the percentage of total deposits of a bank needs to maintain as liquid cash. That money cannot be used for lending and investing purposes.
The rising inflation due to the rise in prices of commodities which include oil and gas, resulting from global tensions, ie Russia-Ukraine war is the reason for the present hike in rates. The RBI statement said high global commodity prices resulting from geo political developments are driving food inflation in India. The fuel prices remain high and logistics costs will tend to stay at high levels in the coming days too. However, it added that the Indian economy is capable of weathering the crisis.
Meanwhile stock markets tanked after the announcement of the new monetary policy. The policy is likely to hit the real estate sector if commercial banks hike interest rates on loans in tune with the RBI.
