Inflation, the key challenge
Hindustan TimesReserve Bank of India governor Shaktikanta Das surprised everyone when he said that the Monetary Policy Committee of the central bank convened an unscheduled meeting between May 2 and 4, and decided to hike the policy rate by 40 basis points and the Cash Reserve Ratio by 50 basis points. PREMIUM Reserve Bank of India Governor Shaktikanta Das digitally delivers a statement, May 4, 2022 While the MPC has kept the official stance of monetary policy as accommodative, it has reiterated that it is being “accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target”. Various factors such as the expectation of a sharp interest rate hike by the United States Federal Reserve — RBI’s announcement came hours before it — or a higher-than-expected inflation reading in April 2022 — the Consumer Price Index growth in March 2022 was 6.95% — could have played a role. However, what the MPC resolution says explicitly to justify its action is that there are “significant upside risks to the inflation trajectory set out in the April statement of the MPC”.