Bankers have welcomed the rate hike by the RBI and a change in accommodative stance to bring inflation under control and help prop up the depreciating rupee.
The Reserve Bank on Friday raised the key interest rate by 50 basis points to 5.40 per cent – the third straight increase since May. With the latest hike, the repo rate or the short-term lending rate at which banks borrow, has crossed the pre-pandemic level of 5.15 per cent.
Dinesh Khara, chairman of the country’s largest lender State Bank of India (SBI), said the policy reaffirms its commitment to bring down inflation further and ensure financial stability in the markets.
The RBI has harmonized key measures to ensure that the economy is protected from the effects of inflation in everyday life to the maximum extent by ensuring broad-based participation in the government securities and foreign exchange markets.
HDFC Bank Chief Economist Abheek Barua described the policy actions as “in line with the new global normal”.
He said the RBI has given a textbook policy, which is front-loaded and aggressive in response to inflation, while the growth momentum remains quite positive.
As for the policy stance, he said, the RBI is likely to continue with its rate hikes and take the policy rate to 5.75 per cent in the next round.
Noting that the central bank has kept its stance unchanged on the “return of the adjustments”, he said that this once again indicates that the sentiment of the stance is being defined by liquidity in the system and, in turn, overnight instead. rate level. Increase in repo rate.
According to Soumya Kanti Ghosh, group chief economic advisor at SBI, the rate hike indicates three possibilities:
(a) the last 50 bps increase has not had any material impact on the inflation trajectory so far and will impact inflation in the long run,
(b) RBI does not want to forecast low inflation at this juncture as it wants to stay ahead of the curve in an uncertain global environment; And
(c) A hike of 50 bps is an indication that the RBI is more concerned about the rupee and the external position, using the interest rate to protect the domestic currency.
He said that even though the RBI has carried forward the rate hike, it remains to be seen how this affects the trajectory of the rupee in the medium term.
Zareen Daruwalla, Cluster CEO – India and South Asia, Standard Chartered Bank, said the policy move is another confirmation of staying on course on the return of housing, and reaffirms its confidence in the domestic economic recovery.
Apart from containing inflation, a hike in rates amid geopolitical uncertainties will provide strength and stability to the rupee, he added.
Citi India Chief Executive Ashu Khullar said the RBI has demonstrated its resolve to maintain macro stability by reining in inflationary impulses and using its buffer to stabilize the external front.
Indian Bank MD and CEO Shanti Lal Jain said allowing standalone primary dealers to offer forex services as authorized dealer category banks would strengthen the forex market.
He said that enabling cross-border inward bill payment system will improve foreign exchange inflow as well as ease and convenience of NRIs.
South Indian Bank CEO Murali Ramakrishnan said policy calibration measures should be viewed in a macro perspective to try to balance both growth and inflation amid volatile times.