RBI guv signals more hikes against inflation
MUMBAI: The Reserve Bank of India (RBI) would continue to raise interest rates in coordinated moves with the government’s fiscal measures to tame inflation, RBI governor Shaktikanta Das said on Monday.
“Expectation of a rate hike is a no-brainer,” Das said in an interview with the CNBC-TV18 chan- nel. “There will be some increase in the repo rate. By how much, I will not be able to say now, but to say that (it will be hiked) to 5.15% now will not be accurate,” he said, adding that the RBI will not allow a runaway depreciation of the rupee.
In a surprise move earlier this month, the monetary policy committee (MPC) raised rates by 40 basis points, ending its ultraloose monetary policy that sought to help the economy weather the disruptions caused by the pandemic.
Signalling another rate hike in the monetary policy meeting in June, Das said that the market was “right in thinking” that the committee wants to raise rates in the next few meetings. The central bank, he said, also wants to remove the overhang of liquidity in the system over two to three years.
Das’s latest comments come after the government cut the excise duty on petrol by ₹8 per litre and diesel by ₹6 per litre last week, which economists said will lead to a revenue loss of close to ₹1 trillion in the current fiscal and will further widen the nation’s fiscal deficit, requiring additional market borrowing.
The government also offered a subsidy of ₹200 per gas cylinder, for up to 12 cylinders, to over 90 million beneficiaries of Pradhan Mantri Ujjwala Yojana. Economists are expecting the excise duty cut to cool retail inflation by 20-30 basis points, leaving FY23 inflation close to 7-7.2%, which is still markedly higher than RBI’s upper target of 6%.
“Without the excise duty cut, the near-term inflation outlook would have been worse for sure, but even with the recently announced measures, India’s CPI (Consumer Price Index) trajectory is likely to be a big concern for the RBI and MPC members for several quarters to come, in our view.,” said Kaushik Das, chief economist, Deutsche Bank India.