RBI policy helps prop up rupee, ensure financial stability: banker

Mumbai:

Bankers welcomed an early rate hike by the RBI and a change from its accommodative stance to firmly rein in inflation and help support a weaker rupee.

The Reserve Bank raised its key interest rate by 50 basis points to 5.40% on Friday, the third consecutive hike since May. With the latest rate hike, the repo rate, or short-term lending rate, on bank borrowings has surpassed the pre-pandemic level of 5.15%.

Dinesh Khara, chairman of the country’s largest bank, State Bank of India (SBI), said the policy reaffirmed its commitment to further reduce inflation and ensure financial stability in the market.

The Reserve Bank of India, in coordinating key measures, ensures that the economy is protected to the greatest extent possible from inflation in everyday life by ensuring broad participation in G-Secs and foreign exchange markets.

Abheek Barua, chief economist at HDFC Bank, described the policy actions as “in line with the new global normal”.

He pointed out that the RBI has launched a textbook-style policy that takes a proactive approach in dealing with stubbornly high inflation, while growth momentum remains fairly positive.

He said that in line with the policy stance, the RBI may continue to raise interest rates earlier and the next round may raise the policy rate to 5.75%.

He noted that the central bank kept its stance on “exit easing,” and said this again shows that the concept of stance is determined by liquidity in the system, and the level of overnight interest rates is determined by the level of overnight interest rates. The repo rate was raised.

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According to Soumya Kanti Ghosh, chief economic adviser at SBI Group, the rate hike suggests three possibilities:

(a) the last 50 basis point rate hike did not have any material impact on the current inflation trajectory and will affect inflation over a longer period,

(b) the RBI does not want to lower its inflation forecast at this time as it wants to stay ahead in an uncertain global environment; and

(c) The 50bps rate hike suggests that the RBI is more concerned about the rupee and external conditions, using interest rates as a defense to protect the domestic currency.

He added that although the RBI has already raised rates earlier, it remains to be seen how it affects the rupee’s medium-term trajectory.

Zarin Daruwala, chief executive of Standard Chartered’s India and South Asia cluster, said the policy reaffirmed its persistence in unwinding the easing policy and reiterated its confidence in the domestic economic recovery.

Apart from controlling inflation, the rate hike will boost and stabilize the rupee in the face of geopolitical uncertainty, she said.

Citi India chief executive Ashkullal said the RBI has shown its determination to macro stability by reining in inflationary impulses and using its buffers to stabilize the external front.

Shanti Lal Jain, managing director and chief executive of Bank of India, said that allowing independent primary dealers to provide foreign exchange services as authorized dealer category banks will strengthen the foreign exchange market.

He added that by enabling a bill payment system for cross-border remittances, the convenience and convenience of NRIs will increase with foreign exchange inflows.

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Bank of South India chief executive Murali Ramakrishnan said policy adjustments must be viewed from a macro perspective, trying to balance growth and inflation during times.