In its latest monetary policy announcement, the Reserve Bank of India (RBI) announced that it has increased the repo rate by 50 bps to 4.90 per cent, indicating its priority to manage the surging inflation. In May, a 40 bps rate hike was announced mid-cycle, surprising many.
The Consumer Price Index (CPI)-based inflation, which the RBI factors in while arriving at its monetary policy, is on the rise since October 2021. Retail inflation has remained above RBI's upper tolerance level of 6 per cent since January. It had soared to an 8-year high of 7.79 per cent in April.
The government has tasked the central bank to ensure retail inflation remains at 4 per cent with a margin of 2 per cent on either side.
With an aim to cushion the impact of lockdown, RBI had slashed the repo rate by 75 basis points to 4.40 per cent in March 27, 2020 from 5.15 per cent. On May 22, 2020, RBI again cut the repo rate by 40 basis points and brought it down to 4 per cent. Thereafter, it maintained status-quo in the benchmark interest rate for almost two years before increasing it on May 4, 2022.
