RBI is mandated to limit CPI inflation in the range of 2-6 per cent.
The rate hike decision comes at a time when global banks are facing tough times apart from economic uncertainty
Even the 3-day meeting of the RBI MPC is underway from April 3 and a rate hike decision will be taken on Thursday, April 6. The rate hike decision comes at a time when global banks are facing tough times apart from economic uncertainty. , These are the challenges before RBI Governor Shaktikanta Das:
Inflation beyond RBI target
RBI is mandated to limit CPI inflation in the range of 2-6 per cent. However, as per the latest data available, India’s CPI inflation for February 2023 stood at 6.44 per cent, which is beyond the RBI’s tolerance limit of 6 per cent for the second consecutive month. The retail inflation in January 2023 was 6.52 per cent.
Growth Undertenity
The World Bank on Tuesday revised its fiscal year 2023-24 GDP forecast to 6.3 per cent in December 2022 from 6.6 per cent in December 2022. Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures,” it said.
Apart from this, unseasonal rains and hailstorms have damaged crops in many parts of India recently.
global banking crisis
Three banks in the US, Silicon Valley Bank, Silvergate Bank and Signature Bank, collapsed last month; While Swiss lender Credit Suisse and US-based First Republic Bank also struggled and sought support to survive.
To manage the crisis, Credit Suisse Group AG said it would borrow up to $54 billion from the Swiss National Bank to shore up its liquidity. However, the plan failed to reassure investors and the bank’s customers. Swiss authorities then urged UBS to take over its smaller rival.
peer pressure
Major global central banks, including the US Federal Reserve and the European Central Bank, have recently raised their interest rates. For the RBI to keep pace with global interest rates, there is pressure on the RBI to raise rates.
oil price movements
Crude oil prices have started rising after the decision of OPEC and its allies to cut production. It has increased to about $ 85 per barrel. This is important for India as the country imports about 80 per cent of its crude oil requirements.
To control inflation in the country, RBI is continuously increasing the repo rate. It has increased the repo rate by 250 basis points six times since May 2022 to control inflation. In the last meeting of the MPC last month, the RBI raised the key repo rate by 25 basis points to 6.50 per cent.
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