MUMBAI: The RBI will continue to raise the repo rate to quell inflationary pressures but saying it would be hiked to the pre-Covid levels is premature, RBI governor Shaktikanta Das said during an interview to a news channel.
“There will be some increase …. by how much I will not be able to say now,” he said during an interview to CNBC-TV 18 channel. He termed expectations of a rate hike a “no-brainer.”
The RBI hiked the repo rate by 40 bps (0.4 percentage) earlier this month ahead of the April CPI print, which came in at an eight year high of 7.79%, driven by surging fuel and food prices.
Citing that the central government’s cut in excise duty on petrol and diesel would have a “sobering” impact on inflation, RBI governor Shaktikanta Das said in the interview that India had entered into another phase of coordinated action between fiscal and monetary authorities on inflation.
The central government cut the excise duty by Rs 8 per litre on petrol and by Rs 6 a litre on diesel over the weekend to reduce the impact of rising inflation on the common man. RBi also said that the rate action in May was taken to avoid much stronger action at the June meeting.
The off-cycle hike on May 4 caused a jump in financial market volatility, with brokerages like Emkay anticipating MPC to hike the repo rate by 25-50 bps at its June 6-8 meeting.
Governor Das also added that liquidity would be brought down in a phased and calibrated manner. During the May 4 meet MPC also raised the CRR by 50 bps, sucking out Rs 87,000 crore of excess liquidity from the financial markets.
On the rupee, he said that RBI’s stated position was to prevent excessive volatility in the local unit. The rupee has fallen 6.4% to the dollar from 72.81 on May 21 last year to 77.51 intraday May 23.
The local unit has seen headwinds due to a rise in crude, which is India’s largest imported item, and FII sales of Indian equities and debt in the current fiscal year (FY23).