RBI increased its buyback rate to 4.40% from a record low of 4%.
India’s central bank raised its key policy rate in a surprise move on Wednesday, sending bond yields higher, as it intensified its fight against inflation that has exceeded expectations. theirs for many years.
In the first unscheduled rate change since the pandemic, the Reserve Bank of India increased its redemption rate to 4.40%, from a record low of 4% that has been held for the past two years to support support the economy.
In an online conference, Governor Shaktikanta Das said persistent inflationary pressures are becoming more acute, adding that the risk of prices staying at this level for “too long” and expectations back should be inaccurate. The bank’s next scheduled rate decision is until June 8.
RBI policymakers recently began signaling that higher rates are on the way as consumer prices breach the upper bound of the bank’s target through the first quarter of 2022.
The move also comes ahead of the Federal Reserve’s interest rate decision on Wednesday, which is expected to see the US central bank’s most aggressive action to combat inflation in decades. .
The rise in fuel and food prices, exacerbated by Russia’s invasion of Ukraine and pandemic-related supply chain disruptions, has been hotter than expected by the RBI in years. now. Key inflation in March rose to a 17-month high of 6.95%, well above the RBI’s 2%-6% target range for the third month.
After reaffirming its accommodative stance in February – a move criticized by some as being too lenient given the risk of rising prices – the central bank said last month that it would begin to prioritize inflation rather than support growth.
Since that pivot, traders have started pricing in the most aggressive rate hikes in the region. The yield on the benchmark 10-year bond rose to 28 basis points as Das said.
Nathan Sribalasundaram, India rates analyst at Nomura Holdings Inc. “Inflation risks warrant a stronger and earlier tightening of monetary policy,” said in Singapore.
In an interview late last month, Jayanth Rama Varma, one of the most belligerent members of the RBI’s rate-setting committee, signaled that the bank was ready to raise borrowing costs. “All the facilities have been built,” he said. “Liquidity normalization has happened, forward guidance has been removed, we are now free to act.”
Another member of the Monetary Policy Committee, Shashanka Bhide, said in a separate interview that policymakers were “slightly surprised” by the rise in food prices.
The RBI in April raised its inflation forecast to 5.7% for the fiscal year beginning April 1, up from 4.5% in February, and said gross domestic product growth for the year in rate of 7.2%, compared with the previous expectation of 7.8. %.
