The stance of monetary policy remained accommodative while focusing on withdrawal of accommodation, Das said.
In the backdrop of surging global commodity prices following Russia’s invasion of Ukraine, Das said that Consumer Price Index based inflation was likely to remain elevated in April and there was a risk of inflation expectations becoming de-anchored.
This poses a risk to growth, the RBI Governor warned.
The shock announcement by the RBI Governor wreaked havoc on financial markets with the Sensex crashing more than 1,000 points. Yield on the 10-year benchmark government bond skyrocketed 26 basis points to 7.38 per cent. Bond prices and yields move inversely.
“It is necessary for monetary policy to focus on withdrawal of accommodation. The decision of the MPC today to raise the policy repo rate by 40 bps to 4.40 per cent may be seen as a reversal of the rate action of May 2020,” Das said.
Today’s decision should be seen as a continuation of the announcement that the RBI was focused on withdrawal of accommodation, Das said.
The RBI has increased the Cash Reserve Ratio requirement for banks to 4.5 per cent of net demand and time liabilities – a proxy for deposits – from 4 per cent earlier, Das said.
This move will have a liquidity impact of Rs 87,000 crore, he said.
“Our decision should be seen as growth positive,” Das said, adding that the RBI was mindful of the impact that higher interest rates has on output.
All the actions of the central bank would be calibrated and sufficient liquidity would be made available for the productive needs of the economy, the RBI Governor said.
The central bank head emphasised that the biggest contribution to overall macroeconomic and financial stability as well as sustainable growth would come from efforts to maintain price stability.
In the April policy meeting, the RBI had sharply increased its forecasts for Consumer Price Index inflation for the current financial year to 5.7 per cent from 4.5 per cent earlier.