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2nd day of RBI's Monetary Policy Committee meeting today

29 Sept 2022 , 11:58 AM

On Wednesday, the Monetary Policy Committee (MPC), which is led by the RBI Governor, started its three-day discussion period. On Friday, September 30, the rate-setting panel's decision would be made public.

The moves have been closely watched, and everyone's attention is focused on the announcement as a 50-basis point increase in interest rates is anticipated in order to control inflation and boost foreign capital inflow and stop the rupee's decline versus the US currency.

The government has given the central bank the responsibility of ensuring that the consumer price index (CPI) stays at 4% with a margin of 2% on either side, but since January, retail inflation has stubbornly remained over the RBI's comfort level. According to the most recent data, inflation in August was 7%.

While inflation is still high, the Indian rupee is rapidly losing value relative to the US dollar, which is presently trading at around 82. The US Fed recently increased its interest rate three times by 75 basis points each, hastening the depreciation of the rupee. Other significant central banks have also accelerated rate increases.

Experts predict that the RBI, which has increased the repo rate by 140 basis points (bps) since May, will likely seek another 50-bps increase, bringing the key rate to a three-year high of 5.9%. Currently, the rate is 5.4%.

Given the tightening of rates by the majority of central banks, including the US Federal Reserve, industry group Assocham stated that an increase in policy interest rates by the RBI in the region of 35-50 basis points looks inevitable.

In addition to addressing inflation, the RBI is anticipated to announce measures to support foreign capital inflows in order to stop the rupee's depreciation against the US dollar. To reach $546 billion, forex reserves have decreased by $86 billion (from their highs last year).

For feedback and suggestions, write to us at editorial@iifl.com

 

Related Tags

  • inflation
  • monetary policy
  • RBI
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