RBI takes the path most travelled
In its latest meeting (6-8 June’22) the Monetary Policy Committee (MPC) of RBI unanimously decided to hike the policy rates by another 50bps. Last month, the MPC had announced an unscheduled 40bps hike in rates. With this hike, the policy Repo Rate (rate at which RBI lends short term money to banks) is 4.90%; Standing Deposit Rate (rate at which banks can park their surplus funds with RBI) is 4.65%. It is relevant to note that in the last rate cycle RBI had cut repo rates from 8% (January 2014) to 6% (February 2018) and then increased it to 6.5% (August 2018). In the current rate cycle, RBI cut the repo rate from 6.5% (August 2018) to 4% (May 2020) and has now started to hike it from May 2022. The consensus market view is that RBI will make another 3 hikes of total 85-110bps till December 2022 to take the rates closer to 6%. The latest statements of the MPC and RBI governor are significant in more than one way. These statements mark a clear shift in the RBI’s monetary policy stance...