In an unscheduled announcement, the Reserve Bank of India(RBI) has hiked a 40-basis-point hike in its lending rate and upped cash reserve ratio(CRR) by 50 basis point.
The hike is first since May 2020. and the RBI Governor Shaktikanta Das said, today’s decision should be seen as part of the central bank’s announcement last month of gradual withdrawal from easy money regime.
Repo is the rate at which RBI lends short-term funds to banks. The RBI has cut the repo rate by 250 basis points since Feb 2019 to help revive economy. Emerging risks of high inflation are trigger to the hike. Sustained inflation will hurt savings, investments, competitiveness and output growth, particularly that of poor segments, said Das.
“I would, therefore, like to emphasise that our monetary policy actions today – aimed at lowering inflation and anchoring inflation expectations, - will strengthen and consolidate the medium-term growth prospects of the economy, Das.
Meanwhile markets reacted to the news with a free fall. Sensex tanked 1306 points ending at 55,669. Nifty shed 2.5 percent ending with 16,677 mark.