RBI rate hikes: Sitharaman says with inflation falling, pressure on MPC to keep increasing rates now less
Finance Minister Nirmala Sitharaman's comments come at a time when the Reserve Bank of India (RBI) hiked key interest rates by 225 bps since May 2022 to battle the rising inflation
New Delhi: Union Finance Minister Nirmala Sitharaman on Friday said with inflation falling on a sustainable basis, the pressure on RBI and monetary policy committee to hike interest rates has now eased.
In an interview with Network18 Group Editor Rahul Joshi on Friday (3 January), Sitharaman said: “I expect since the fall in the inflation doesn’t seem to be just a momentary or a one-month affair, it should sustain itself in the process of coming down and therefore there shouldn’t be that much pressure on the central bank to keep the pace of increasing the rates but the MPC will take a call of course.”
The finance minister’s comments come ahead of the monetary policy review scheduled next week.
The comments of Sitharaman also come at a time when the Reserve Bank of India (RBI) hiked key interest rates by 225 bps since May 2022 to battle the rising inflation.
For the unversed, in 2022, the RBI wrote to the government after it failed to keep the inflation within the 2-6 per cent limit for three consecutive quarters.
As per the rule, the MPC needs to keep inflation at a 4 per cent target with an error margin of 2 per cent on either side.
In its February review (scheduled next week) the MPC is expected to hike the repo rate by another 25 bps. Repo rate is the rate at which the RBI lends short-term funds to banks.
After remaining above the 6 per cent upper band for around a year, the retail inflation began to fall later last year, providing comfort to the monetary policymakers. The CPI inflation eased to a one-year low of 5.72 percent in December from 5.88 percent the previous month. At 5.72 percent, the latest Consumer Price Index (CPI) inflation print is below the consensus estimate.
This is the third month in a row that CPI inflation has fallen. It is also the second month in a row that it has come in lower than the upper bound of the Reserve Bank of India’s (RBI) 2-6 percent mandate. With inflation beginning to ease on a sustainable basis, the Indian central bank may have reached the end of the current rate hike cycle, economists said.
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