RBI and policy normalization

09 MAY,2022 | MEDC


 

In its latest policy announcement, RBI surprised the market with a repo rate hike of 40 basis points. It seems that the monetary policy committee (MPC) has finally decided to focus on inflation control. This stress on normalization sends out an unambiguous message that the overall policy of RBI is no longer accommodative. The days of easy money are over. As policy normalization takes hold, and rates keep rising, industry will face increasing challenges. Rising rates also impact investment decisions, as companies expand capital plans only if there is projected demand.  With recent inflation in the economy largely outside RBI’s comfort zone, the underlying rationale of the move becomes clear. More rate pain probably awaits Indian corporates, but RBI has acted in the best long-term interest of the economy. It is a bold step in the right direction.

*Picture Credit: Google

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