RBI governor says rate hikes ‘no-brainer’ in next monetary policy

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Shaktikanta Das, Governor of the Reserve Bank of India, said it was “trivial” to expect a rate hike at upcoming policy meetings and the RBI will raise rates, which could signal another rate hike. Reducing excess liquidity over the next two to three years. The governor dispelled rumors of an increase in borrowing, expressing confidence that the federal government will stick to its budget deficit target.

“I stated in the minutes of the monetary policy committee meeting that one of the reasons for the out-of-cycle meeting in May was to prevent a more aggressive reaction in June,” Das said in an interview with a TV channel. He stressed that the RBI cannot raise interest rates sharply all of a sudden. Regarding the withdrawal of liquidity, Das said, “We stated that liquidity will normalize in a multi-year period. “Two or three years will depend on the dynamics of inflation,” he said. According to Das, the normalization of liquidity does not necessarily mean a return to the pre-Covid level, because the economy has expanded and inflation dynamics have changed.

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In the policy meeting minutes, RBI Deputy Governor Michael Patra stated that rate cuts made during the epidemic should be reversed. The market interpreted this as the RBI targeting a repo rate of 5.15 percent. “The expectation of an interest rate increase is not bad at all. There will be a raise but I can’t guess how much right now. Saying 5.15 percent may not be accurate,” said Das.

RBI governor says rate hikes ‘no-brainer’ in next monetary policy

Interest rates are negative in almost every country except Russia and Brazil. The inflation target for industrialized economies is about 2 percent. “We will move in this direction (towards positive real interest rates) but it is impossible to predict when it will happen because the situation is so volatile. For example, we will depend on our and our government’s transactions. Accordingly, the inflation indicator fluctuates,” he said.
Two days before the governor’s meeting, the government lowered taxes on fuel prices to help RBI’s efforts to curb rising costs. In April 2022, consumer price inflation rose to 7.8 percent from approximately 7 percent compared to the previous month. Das stated that he wants to dispel rumors that government borrowing will increase by Rs 1 lakh crore as a result of the cut in fuel taxes.

There is no direct relationship between government expenditures and borrowing.

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