Business & Economy

India’s central bank hikes key lending rate amid inflation concerns

New Delhi, May 4 (EFE).- The Reserve Bank of India on Wednesday announced an increase in its benchmark lending rate, raising it from 4 to 4.40 percent, in response to inflationary pressure affecting the world economy due to the Ukraine conflict, which has also affected the Indian market.

After holding a series of meetings this week, the central bank unanimously voted to “increase the policy repo rate by 40 basis points to 4.40 per cent with immediate effect,” RBI governor Shakti Kanta Das said in a televised speech.

This is the first time since May 2020 that the RBI has modified the key benchmark, which is the rate at which it lends to commercial banks.

After the announcement, the Sensex – the benchmark index of the Bombay Stock Exchange – plummeted more than 1,000 points within minutes, as the interest rates for loans are expected to rise after the decision.

Das said the monetary institution has taken the measure in the context of rising inflation due to the Ukraine conflict, which has pushed up the per barrel oil price to over $100, apart from other consequences.

The evolving situation would require adjustment in RBI policy decisions, said the governor, adding that the measure aims to “ensure that inflation remains within the target going forward, while supporting growth.”

Despite the end of the third Covid wave driven by the Omicron virus and easing of restrictions, the central bank estimated that inflation had touched 7 percent in March, marking the third consecutive month when the figure remained above the government target of 2-6 percent.

Since the beginning of the Covid-19 pandemic and a months long shutdown of the economy, the RBI has maintained accommodative financial policies, slashing interest rates to historically low levels in order to ease financial stress and improve access to capital.

This has helped boost liquidity in the Indian economy, which has in turn contributed to high inflation.

The regulatory body projected a 7.2 percent inflation during the current financial year (April 2022-March 2023), due to which it would prioritize controlling price rise over growth.

The Ukraine war has led to the International Monetary Fund slashing its growth forecasts for the year, apart from predicting that the global inflation levels could continue to rise, reaching 5.7 percent for the developed economies by the end of 2022, while emerging and developing economies are expected to witness 8.7 percent inflation. EFE


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