At its meeting of the financial year, 2022-23, on Wednesday, the Monetary Policy Committee of the Reserve Bank of India increased the basic rate by 25 basis points to take the repo rate to 6.5%. This is widely expected to be the last rate hike for the current financial year. At its last meeting in December the RBI had hiked the repo rate — the rate at which the central bank lends money to the banks — by 35 basis points. Since May last year the repo rate has been hiked by 2.5% or 250 basis points. These increases in the interest rate are done with the objective of containing inflation. The RBI remit is to hold consumer inflation within a 2% band between 4 and 6%. Though in recent weeks consumer inflation has eased somewhat, the latest data shows that it is still ruling at 6.5%.
RBI Governor Shaktikanta Das briefing reporters after the meeting of the MPC on Wednesday said that the central bank is always alive to the inflationary currents in the economy, determined to contain it within the stipulated 4-6% band. Though the MPC was divided 4:2 on raising the repo rate, the RBI expected the inflationary pressures to recede in the coming weeks which should obviate the need for a tighter monetary policy. Indeed, Das noted that the global economy too was doing better, belying fears of a deep recession. He expected domestic economy to grow by 6.4% in the current fiscal. Even consumer inflation most likely will moderate to 5.3% in the coming financial year. But thanks to the successive hikes in the PLR, it is the ordinary middle-class borrowers for housing and automobile loans who have to pay higher Equated Monthly Instalments. While banks are quick to increase lending rates and the EMIs, they do not show the same dispatch in hiking the rates on term deposits and savings bank accounts.
It is for the central bank as the chief watchdog over the banking sector to address this lacunae in retail banking. The corporate sector can look after itself, negotiating a favourable rate with the lending banks and financial institutions; it is the small borrowers who feel the pinch of a higher PLR. In any case, the private sector credit growth has been relatively slow in recent months owing to its reluctance to undertake fresh capital expenditure on new projects. Whether the increase in the PLR will be matched by a suitable increase in the interest on deposits in savings bank accounts and other instruments such as fixed term deposits is uncertain. Otherwise, small savers with various retail banks are net losers since the rate of inflation is higher than the interest rate on the savings-bank accounts. This is unfair. And needs to be corrected.
Much ado over a short-seller
Honourable members of Parliament meeting in the annual budget session deserve credit for returning near-normalcy to the two Houses. Fear was that seizing the report of the American short-seller in the Adani bonds at the New York stock exchange, they would return to the default position of bedlam and some more bedlam. Fortunately, after wasting two days, both Houses functioned near normal on Monday as well as Tuesday. Ordinary citizens must be grateful for such small mercies dispensed by the honourableble MPs who, instead of shouting and sloganeering, actually participated in the debate on the motion of thanks on the President’s Address. Rahul Gandhi, fresh from his 3,500-km trek through the country, used the occasion to lament the extraordinary rise of Gautam Adani in the corporate world in the last nine years of the Narendra Modi government. However, on Tuesday, speaking on the motion of thanks to the President, the PM barely touched upon his tirade against. Modi dismissed the charges against him by the Congress leader as “baseless and scurrilous”, asserting that his standing with the people was unlikely to be affected by those whom people had repeatedly rejected for their corruption and incompetence. The PM went on to enlist the achievements of the last nine years, asserting that the country was on the correct path of growth and progress and was determined not to be deterred by the confrontationist politics of the Congress Party. While the Congress benches kept up a chant of Adani, Adani though most part of his 40-minute reply to the debate, PM stuck to his broad theme of social and economic progress made possible by various policies of the government.
