RBI LIFTS LOAN COSTS TO TAME INFLATION

  • The Monetary Policy Committee (MPC) of the Reserve Bank of India on Wednesday raised the benchmark lending rate by 25 basis points (bps) to 6.5% as the RBI targets persistently high core or underlying inflation that it sees as a risk to the improving outlook for the economy.
  • Observing that the rate increases since May were still working their way through the system.
  • The MPC was of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored, break the persistence of core inflation and thereby strengthen the medium-term growth prospects.
  • The MPC, which lowered its CPI inflation forecast for the current fiscal year to 6.5% from the 6.7% it projected at its last policy meeting in December and raised its growth estimate for Q1 of the fiscal year beginning in April by 70 bps to 7.8%, also reiterated that it would stay focused on withdrawal of accommodation.
  • Two of the panel’s six members, however, voted against the majority decision to raise rates.
  • Answering reporters’ questions on the Adani group, Mr. Das said the Indian banking sector was strong and that one case would not impact it.
  • At this point of time, I would like to say that the Indian banking system, including the NBFC sector, continues to be resilient and strong.
  • Based on our assessment, the large exposure guidelines of the RBI have been fully complied with by all the banks.
  • The strength, the size and the resilience of the Indian banking system is now much larger and much stronger to be affected by an individual incident or a case,” the RBI Governor emphasised.
  • When banks lend money to a company, they do not lend on the basis of the market capitalisation of that particular company.
  • They lend on the basis of strength of that company and fundamentals,” he added, without naming a company or group.
  • The Indian economy remains resilient… it has withstood successive global shocks over the last three years.
  • Noting that inflation had shown signs of moderation
  • The RBI chief said the real policy rate had moved into positive territory and the banking system had exited from the chakravyuh of excess liquidity without causing any disruption.

SOURCE: THE HINDU, THE ECONOMIC TIMES, PIB

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