repo

Repo Rate Back To Pre-covid Levels At 5.4% – Free PDF Download

 

What has happened?

  • The Reserve Bank of India (RBI) raised the repo rate by 50 bps to 5.40% on August 5 for the third consecutive time and
  • Retained its stance of ‘withdrawal of accommodation’ to ensure that inflation remains under control.
  • The Repo rate is now back to pre-pandemic levels, the highest since August 2019.

  • The RBI rate-setting committee was unanimous in its decision on lifting the rates as the current inflation remains above RBI’s comfort zone.
  • The Reserve Bank’s rate-setting panel – Monetary Policy Committee – started the meet on August 3 for three days to deliberate on the prevailing economic situation.

Inflation

  • The RBI Governor said that the household inflation expectations have eased, but remain elevated.
  • CPI inflation for July-September is seen at 7.1%, October-December is seen at 6.4 per cent, while January-March 2023 is pegged at 5.8 per cent.
  • Governor Shaktikanta Das said that the consumer price inflation has eased from its surge in April but remains uncomfortably high and above upper threshold of target.

GDP forecast

  • RBI Governor Shaktikanta Das said that the FY23 GDP growth forecast has been retained at 7.2%.
  • To cushion the impact of the Covid-induced lockdown, the central bank slashed the repo rate in March 2020 and maintained the status quo in the benchmark interest rate for almost two years.
  • It first increased its key lending rate in two years since Covid in a surprise move on May 4, 2022.

RBI on Rupee depreciation

  • Governor Shaktikanta Das said rupee has fared much better than many reserve currencies or Asian currencies.
  • “Depreciation of rupee is due to strength of the dollar, rather than any weakness in India’s macro fundamentals.
  • Remain focused on maintaining the stability of the rupee,” he added.

FDI inflows

  • The RBI Governor said that FDI inflows improved to USD 13.6 billion in the first quarter of the current fiscal, against USD 11.6 billion in the corresponding period last year.
  • He further said that FPIs after remaining in exit mode in first quarter have turned positive in July, said RBI Governor.

External factors

  • The Governor said the inflation trajectory will depend upon global markets and geopolitical developments.
  • “There has been some let up in commodity prices and softening in global food prices.
  • The resumption of wheat supply from the Black Sea region could help tamper inflation,” he said.
  • If the monsoon is normal, and at an average crude oil price of $105 per barrel for the year, “inflation is projected at 6.7% in 2022-23,” Das.
  • The Governor highlighted the risks being faced globally and the impact it will have on emerging economies, including India.
  • He said that while the International Monetary Fund has highlighted recession risk and revised global growth, for emerging market economies the risks are magnified as they have domestic inflation concerns and there will be impact of monetary tightening worldwide.

Q) The concept of weaker sections under ‘priority sector lending’ was introduced on the recommendation of which of the following committees?

  1. Krishnaswami Committee
  2. Varshney Committee
  3. Gadgil Committee
  4. Abid Hussain Committee

 

 

 

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