RBI policy to help prop up rupee, ensure financial stability: Bankers

Mumbai: Bankers have welcomed the front-loading of rate hikes by the RBI and changing the accommodative stance to resolutely bring inflation under control and help prop up rupee.

The RBI on Friday raised the key interest rate by 50 basis points to 5.40 per cent — the third straight increase since May.

With the latest hike, the repo rate or the short term lending rate at which banks borrow has crossed the pre-pandemic level of 5.15 per cent.

Dinesh Khara, chairman of the SBI, said the policy reaffirms the commitment to bring inflation down further and ensure financial stability in the

markets.

The RBI, in harmonising key measures, has ensured that the economy remains cushioned to the maximum extent from the impact of inflation in everyday lives by ensuring broad-based participation in G-Secs and the forex market.

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

The RBI has delivered a textbook policy, one that is frontloaded and aggressive in response to inflation that remains high while growth momentum remains reasonably positive, he noted.

According to Soumya Kanti Ghosh, group chief economic adviser at SBI, the rate hike indicates three possibilities — (a) the last 50 bps hike did not have any material impact on the inflation trajectory as of now and will impact inflation in the longer horizon, (b) RBI does not want to put a lower inflation forecast at this time as it wants to remain ahead of the curve in an uncertain global environment; and (c) the 50 bps hike is an indication that RBI is more concerned about rupee and external situation by using interest rate as an defence to protect the domestic currency.