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What Explains RBI's Sudden Hike in Repo Rate? Rising Inflation or Catch Up?

Alongside this, the central bank also raised the cash reserve ratio or CRR by 50 basis points to 4.50 percent.

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2 min read

In a surprise move on Wednesday, 4 May, the Reserve Bank of India hiked the benchmark repo rate for the first time in four years by 40 basis points to 4.4 percent. Alongside this, the central bank also raised the cash reserve ratio or CRR by 50 basis points to 4.50 percent.

Unveiling the new policy on Wednesday, RBI Governor Shaktikanta Das said the bank is aiming to keep inflation – which is already close to 7 percent – at the desired level in the wake of the ongoing Russia-Ukraine war and increase in food and commodity prices globally.

However, there are a few puzzling takeaways from the central bank statement. First, is the fact that the bank has retained the accommodative monetary policy, which essentially means that the bank is prepared to expend the money supply to boost economic growth. This, obviously, runs counter to the bank's latest move.

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Second is the timing of it. Less than a month ago on 8 April, the bank's Monetary Policy Committee – which decides the repo rate – decided to keep the rate unchanged despite rising inflation and tightened geopolitical uncertainty. And since the same factors remain even now, why the sudden hike? What changed?

In today’s episode, we break down what prompted the RBI to hike the repo rate, the significance of the move, and how it will impact the end consumer.

In today’s episode, you will hear from Ananth Narayan, Professor of Finance at SP Jain Institute of Management and Research, and Quantum Advisors India's Arvind Chari. You will also hear from Prosenjit Dutta, former editor of Businessworld and Business Today.

(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

Edited By :Padmashree Pande
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