RBI’s Decision to Raise Policy Rate to Help Economy in Medium Term, Says Assocham


According to reports, Industry body Assocham on Thursday said the Reserve Bank’s decision to raise the benchmark lending rate by 50 basis points to 4.9 percent will help the Indian economy in the medium term. The central bank on Wednesday raised the repo rate for the second time in five weeks. Earlier, it had raised the short term lending rate by 40 basis points (bps) on May 4.

Assocham President Sumant Sinha said through a clearly well-coordinated approach between the RBI and Finance Ministry, Indian government and monetary policy makers have managed the challenging global environment with foresight and calmness, the report said.

“The RBI’s move to raise policy interest rate by another 50 bps within a short timeframe will help the Indian economy in the medium term,” Sinha said.

He further said that inflation, though a concern, is still within relatively manageable limits, especially when compared to many parts of the world.

“It is understandable that there is concern about the rate hikes resulting in higher EMIs, but, in the longer run, the resulting price stability will play a crucial role in supporting rising demand, which is key,” he said.

Sinha said that RBI will have to continue to work closely with the government and other stakeholders such as India Inc. to ensure the robust pace of the economic recovery coming out of the pandemic’s third wave is sustained, in a higher interest rate environment, the report said.

The taming of inflation is critical to sustain the economy’s robust growth momentum, especially given the continued global challenges including high energy and food costs, he pointed out.

All in all, the RBI’s move is necessary and well-reasoned, given the current macro-economic currents, the Assocham President stated, the report said.

Meanwhile, Nilanjan Banik, Professor Finance and Economics at Mahindra University said the RBI did the right thing by increasing the repo rate.

“This will complement the government’s approach to contain inflation by reducing the excise duty on petrol and banning wheat and sugar exports. When monetary and fiscal policy works in tandem, like in this case, the impact on controlling inflation will be much faster,” Banik said.

Home, auto and other loan EMIs will rise following the decision of the Reserve Bank of India (RBI) to raise the key interest rate by 50 basis points to tame stubbornly high inflation. (Economic Times)