Aug. 2, 2018

Monetary policy committee (MPC) of RBI has increased the Repo Rate (rate at which RBI lends to banks) by 25 basis points to 6.5% due to inflation concerns.

Comment on recent rate hike:

  • This is the second successive rate increase which highlights concerns wrt inflation.

  • Reasons given by Reserve Bank of India (RBI) while increasing the rate are:
    • Risks to macroeconomic stability from a potential ‘currency war’ in the wake of rising global trade tensions,

    • Continuing volatility in crude oil prices; Oil supply disruptions due to geopolitical tensions.

    • Volatile global financial markets,

    • Increase in the minimum support price for kharif crops,

    • decline in the total sown area under kharif season due to deficient rainfall over a wider area than last year and

    • the impact of upward revisions to house rent allowance paid by State governments.

  • RBI, under the monetary policy framework, is legally mandated to maintain inflation at close to the 4 %per cent mark. In this background, experts have regarded the recent RBI decision as a wise one.

Source : The Hindu