For the NDA Government, across its four and a half year tenure, it is a ‘first’ – the RBI has raised a ‘cautionary flag’ on inflation, by raising the repo rate by 25 basis points. In what is being seen as a ‘counter-balancing factor’, the RBI has retained its ‘neutral’ stance. The six-member monetary policy committee (MPC), headed by RBI Governor Dr. Urjit Patel, adjusted reverse repo rate to 6 percent. Consequent to the change in the repo rate, the Marginal Standing Facility (MSF) rate stands adjusted to 6.50 percent with immediate effect.
As expected, the RBI has flagged higher risks on inflation, at 4.8 and 4.9 percent for the first two quarters and 4.7 percent for the second half of the year. With the inflation target of 4 percent, it provides a good indication on the RBI policy stance to be expected going forward. Terming the rate hike as ‘justified’ on account of inflationary trends, global hardening of interest rates as also petroleum prices moving upwards, Dr. Niranjan Hiranandani, Co-founder & MD, Hiranandani Group and President (National) NAREDCO, said RBI’s move was in sync with broader macro indicators.
The positive aspect, according to Dr. Niranjan Hiranandani, is that the MPC has revised upwards the estimates of agriculture and allied activities on the supply side supported by an all-time high production of food grains and horticulture during the year. Stating that the hike of 0.25 basis points in the repo rate is ‘not expected to make a major difference to real estate’, Dr. Niranjan Hiranandani added that in the long run, “we would prefer rates to come down”.
Dr. Niranjan Hiranandani added that the RBI seems to be expecting increased industrial activities. “Overall, the policy statement is all about RBI’s commitment to manage inflation at 4 percent level, while taking care of real economy growth at the same time,” concluded Dr. Niranjan Hiranandani.