You are here: Home » Economy & Policy » News
Business Standard

RBI raised interest rates fearing 'shocker' April inflation data: Report

The central bank's move shocked the markets and drove bond yields to multi-year highs. The 10-year benchmark bond closed at 7.40% on Thursday, its highest in three years

Topics
Reserve Bank of India | India

Reuters  |  Mumbai 

RBI, reserve bank of india
Economists on Thursday told Reuters they expected the central bank to front load more aggressive interest rate hikes at least until its repo rate hits its pre-COVID level of 5.15%.

India's central bank hiked its key lending rate in a surprise move on Wednesday fearing "shocker" numbers for April, a person aware of the matter said, adding the ultimate aim is to reverse its pandemic-era ultra-loose rate regime.

The (RBI) raised the repo rate by 40 basis points to 4.40%, in its first rate move in two years and its first rate hike in nearly four years.

"It looked imminent that the April (inflation) number which will arrive on May 12 will be a equal shocker," the person, who declined to be named because the discussions were private, said on Thursday.

The RBI did not immediately respond to a request for comment.

The central bank's move shocked the markets and drove bond yields to multi-year highs. The 10-year benchmark bond closed at 7.40% on Thursday, its highest in three years.

India's annual retail accelerated to almost 7% in March, its highest in 17 months and above the upper limit of the central bank's 2%-6% tolerance band for a third straight month.

Markets see the central bank raising its key rates further in the coming months as it expects to remain elevated.

"If inflation is going to be higher which all projections show, we want to leave our hands untied," the person said.

Economists on Thursday told Reuters they expected the central bank to front load more aggressive interest rate hikes at least until its repo rate hits its pre-COVID level of 5.15%.

The source said the central bank's policy was still accommodative given India's economic output was below potential and inflation above target.

The central bank is also unlikely to conduct open market operations (OMO) to help the government with its record borrowing of 14.31 trillion Indian rupees ($187.44 billion) in the current fiscal year that started on April 1.

"It would be odd for us to suddenly talk about withdrawal of accommodation and do OMOs which will be counter to the kind of logic we are putting out," the source said.

He also added that the central bank will support borrowing in other ways but did not give details.

($1 = 76.3426 Indian rupees)

(Reporting by Nupur Anand and Aftab Ahmed; Editing by Tomasz Janowski)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Thu, May 05 2022. 22:35 IST
RECOMMENDED FOR YOU