NEW DELHI: Reserve Bank of India (RBI) Deputy governor Michael Debabrata Patra on Friday hinted that the central bank might be thinking of a halt in policy rate hike. Addressing a session organised by an industry body, Patra said he believes that ‘the RBI has surged ahead of the curve’.
“Starting in April and up to June, monetary policy has effectively tightened by 130 basis points,” he said while pointing out that headline inflation, after having moved up by 80 bps in April, reverted by almost the same magnitude in May.
The RBI has hiked repo rate – the rate at which RBI give short-term loans to banks – by 90 basis points in two tranches and increased the cash reserve ratio by 50 basis points. Explaining the need for the RBI’s knee-jerk hike in policy rates, the deputy governor said that though most of the inflation in food prices was due to war in Ukraine, there were concerns that inflation would get entrenched in India's psyche forcing the consumers to /reduce defer purchases, demand higher salaries and rents. This, the deputy governor said, could also force the businesses to cut down on production.
He said RBI’s policy action was more to calm the nerves of people, businesses as well as foreign investors who are sensitive to monetary policy actions. Patra also expressed confidence that the inflationary pressure would subside, going forward..