The government said that Reserve Bank of India (RBI) took an imperative move by raising the key interest rate. “Necessary step in the right direction,” Finance Secretary TV Somanathan told NDTV on Thursday.
The Reserve Bank had raised the repo rate by 40 basis points (bps) to 4.40 per cent in an off-cycle meeting on Wednesday. Repo rate is the rate at which a central bank lends money to banks.
RBI’s rate hike decision is aimed to curb surging inflationary pressure. The central bank had maintained status quo on key policy rates for almost two years due to the ongoing Covid-19 pandemic.
When asked about the Centre’s measures to contain inflation, Mr Somanathan said, “Government is already taking a lot of steps to ensure fertiliser prices are kept in check and increase subsidies. We have also increased food grain allocation under the Garib Kalyan Yojana.”
Retail inflation hit nearly 7 per cent in March and held above the upper end of the RBI’s target band of 2-4 per cent for the third month in a row.
RBI Governor Shaktikanta Das stated that the sharp rise in inflation in March to 7 per cent was propelled in particular due to food inflation and the impact of unprecedented high global food prices.
“The decision to hike repo rate was taken in view of rising inflation, geopolitical tensions, high crude oil prices and shortage of commodities globally, which have impacted Indian economy,” Mr Das said.
On the global front, the U.S. Federal Reserve has also raised the benchmark lending rate by a half percentage point in its ongoing effort to contain the highest inflation in four decades. After a quarter-point increase in March, the US central bank pushed the rate above 0.75 per cent.