Again half a percent ‘repo’ increase volume; Economy in good shape, RBI eyes on inflation control

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Mumbai: On Friday, the Reserve Bank of India increased the repo rate by 50 basis points, i.e. by half a percent. With this third consecutive and total increase of 1.40 percent since May, the repo rate has gone up to 5.40 percent, higher than the pre-coronavirus level of 5.15, and this is the highest level since August 2019. As the interest rates of home loans, car loans and other consumer loans are gradually increased by the banks due to this repo rate hike, there is a sense of disappointment in the industry as a whole, including the real estate sector.

In this three-day meeting of RBI Governor Shaktikanta Das chaired by RBI Governor Shaktikanta Das, all the members voted unanimously in favor of rate hike. Governor Shaktikant gave the reason for the rate hike as it was necessary to control the rate of inflation as it remained above the unpalatable six per cent level for the RBI. He added that given the aggressive trend of interest rate hikes by central banks around the world, the latest half-percent hike is relatively ‘modest’. Economist circles had expected a hike in the repo rate by up to 35 basis points this year.

While announcing the rate hike, Governor Shaktikanta Das indicated that the priority remains on controlling inflation. Also, no indication of a possible pause in rate hikes has been given in the upcoming monetary policy. The central bank has maintained the Gross National Product (GDP) growth rate at 7.2 percent for the current fiscal year ending March 31, 2023. While the inflation rate for the year has also been kept unchanged at 6.7 percent without any change. According to this, the inflation rate is likely to remain above 6 percent till the end of the third quarter of the current financial year i.e. December, while it will decline to 5.8 percent in January-March 2023. Inflation remained above the RBI’s tolerance level for the sixth consecutive month in June.

Inflation relief

The Governor said that there has been some reduction in prices of globally important commodities, metals and food grains. At the same time, he expressed the expectation that domestic edible oil prices will further decrease due to improvement in supply from major producers. As the monsoon has become active across the country, sowing of kharip has picked up speed everywhere in the last few weeks. Some delay in kharif sowing of rice is likely to reduce production. However, there is plenty of additional stock available in the country. Still, it needs to be looked at closely. However, he also admitted that since most of this inflationary pressure is ‘imported’, the scope of control over it is limited.

Rupee falls due to appreciation of dollar

Given the sharp devaluation of the currencies of emerging economies and other advanced economies globally, the rupee has fared relatively well. The central bank is monitoring the volatility and movements of the rupee against the dollar and other currencies. Das insisted that the decline in the rupee was not due to the growth rate of the country’s economy, but due to the appreciation of the US dollar, the depreciation of the rupee increased.

Higher interest rates on deposits possible

If the banks can attract more deposits, they can increase the credit supply, said Governor Das. He also confirmed that the interest rate on deposits is free from the control of the Reserve Bank, and the banks themselves have to take a decision in this regard as per their need. Banks have started increasing interest rates on deposits in response to the RBI’s hike in repo rates. Das expressed hope that this trend will continue in the future as well.

NRIs can use Bharat Bill Payment

Non-Resident Indians (NRIs) will now be able to make payments using Bharat Bill Payment System. The system will be open to them to pay various types of payments, education fees, insurance and similar installments on behalf of their family members in India. It will be convenient for NRIs who do not have an NRE account, the RBI clarified on Friday. Payments for various services can be made through the Bharat Bill Payment platform. Currently, more than eight crore transactions are done through this channel every month.

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