RBI Governor Shaktikanta Das on Wednesday said that the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), in an off-cycle meeting held between May 2 and 4, hiked the Repo Rate by 40 basis points (bps) to 4.40 per cent with immediate effect in a bid to contain inflation. 

Addressing the media, Mr Das said that the MPC had unanimously decided to hike the interest rate by 40 bps to 4.40 per cent. He added that the RBI’s MPC met off cycle to assess the global growth. Consequently, the Standing Deposit Facility (SDF) Rate stands adjusted to 4.15 per cent, while the Marginal Standing Facility (MSF) Rate and the Bank Rate to 4.65 per cent. 

Mr Das also announced that the monetary policy still remained accommodative and careful. Calibrated withdrawal of pandemic-related measures would be undertaken by the central bank. 

Speaking about inflation, the RBI governor said that geopolitical tensions were forcing inflation higher in major economies and added that crude oil price was volatile and above $100 per barrel. There was edible oil shortage, owing to European conflict and ban by exporter, Mr Das said. 

He said that the interest rate hike was aimed at strengthening and consolidating medium-term economic growth prospects. The RBI chief noted that foreign exchange reserves remained high at over $600 billion and the debt-to-GDP ratio was low. 

Additionally, Mr Das announced that the RBI hiked the Cash Reserve Ratio (CRR) by 50 basis points to 4.50 per cent, effective May 21. 

Following the sudden announcement by the central bank chief, the stock markets reacted sharply with the S&P BSE Sensex crashing 1,306.96 points (2.29 per cent) to end at 55,669.03, while the Nifty 50 fell by 391.50 points (2.29 per cent) to settle at 16,677.60. 

This was the first-ever change in the RBI’s key lending rates in nearly two years. The RBI had last revised its policy Repo Rate or the short-term lending rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate by 40 bps to a historic low of 4 per cent.