Finally, after aggressive rate hikes, the MPC has signalled a shift to slower rate hikes. The outcome of yesterday’s MPC meeting was a 35 basis point hike. Let’s quickly go through the nitty-gritty details of the MPC meeting.
What’s happening? A few days back, Federal Reserve Chairman, Mr Jerome Powell, said it was time to slow the pace of coming interest rate hikes. That was a fair signal that the RBI’s MPC will follow similar steps. And the outcome is here.
The MPC has signalled the shift to slower rate hikes. The result of December’s MPC meeting was a 35 basis point hike. Including this rate hike, the MPC has hiked the repo rate – at which the RBI offers short-term loans to banks – to 6.
25% in the current rate hike cycle. Even if the rate hikes have been slowed down, the threat of inflation has yet to vanish. There are possibilities of further rate hikes.
Critical takeaways from December’s MPC’s press release In the MPC press release, Mr Shaktikanta Das mentioned that the global economy is still marked by shocks. But, the Indian economy remains resilient, and India is seen as a bright spot in a gloomy world. That’s something positive to hear! Few rates have been readjusted: • The RBI’s MPC hiked the repo rate by 35 basis points to 6.
25%. • Inflation is expected to be above 4% in the next one year. • The Standing Deposit Facility (SDF) has been increased by 35 basis points each to 6%.
It is an efficient way for the RBI to absorb excess liquidity from commercial banks without giving government securities in return. • The real GDP forecast for FY23 has been revised downwards to 6. 8%, which was 7% in the last MPC meeting.
• From April to October 2022, the FDI inflows rose to $22. 7 billion. • The Indian rupee has appreciated by 3.
2% during April-October 2022. Impact of rate hike The clouds of concern wander over individuals who have taken loans from banks on a floating rate basis. They will see their EMIs going up further or extension in the tenure of the loan due to the current repo rate hike.
According to Economic Times, a 10% salary hike is insufficient to cover the impact of home loan EMI. In the monetary policy meeting held from 28th to 30th September 2022, Prof Jayanth Varma, a member of MPC, kept some strong opinions on pausing further rate hikes. The reason behind this was that further aggressive rate hikes would hamper the fragile growth outlook of India.
Moreover, we are already experiencing short-term turbulence in the overall housing demand. Unemployment stats in India is increasing at a faster pace. In November, the data shot up to 8%, which was 7.
77% in October 2022 and 6. 43% in September 2022. Because individuals are losing their jobs, inflation is taking another bite, and the rate hike in unison is hurting the economy as a whole.
What’s next? Taming inflation is hard, and the MPC has a long way to go. So, this won’t be the last rate hike. The MPC may give out more rate hikes before shifting to a neutral stance.
Even if India is resilient amid the storms of the global economy, it’s time to shift the focus beyond inflation towards supporting growth. (To receive our E-paper on whatsapp daily, please click here. To receive it on Telegram, please click here .
We permit sharing of the paper’s PDF on WhatsApp and other social media platforms. ).
From: freepressjournal
URL: https://www.freepressjournal.in/business/rbi-monetary-policy-another-35-bps-hike-whats-next-teji-mandi-explains
