Bankers have welcomed the front-loading of rate hikes by the RBI and changed the accommodative stance to resolutely bring inflation under control and help prop up the falling rupee.
The Reserve Bank 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 nation's largest lender State Bank of India (SBI), said the policy reaffirms the commitment to bring inflation down further and ensure financial stability in the markets.
The RBI, in harmonizing 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, the 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.
Going by the policy stance, he said, the RBI is likely to continue with frontloading of its rate hikes and the next round can take the policy rate to 5.75 per cent.
Noting that the central bank has kept its stance unchanged at "withdrawal of accommodation", he said it signals yet again that the notion of stance is being defined by the liquidity in the system and in turn, the level of the overnight rate instead of the repo rate hikes.
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 a defense to protect the domestic currency.
He added that even though the RBI has frontloaded the rate hikes, it remains to be seen how it influences the trajectory of the rupee over the medium term.
Zarin Daruwala, cluster CEO -- India and South Asia, Standard Chartered Bank, said the policy move is yet another affirmation of staying the course on withdrawal of accommodation and reaffirms its confidence in the domestic economic recovery.
Apart from reining in inflation, the rate hike will also bolster and stabilize the rupee in the face of geopolitical uncertainties, she said.
Citi India chief executive Ashu Khullar said the RBI has demonstrated its resolve to preserve macro stability by reining in inflationary impulses and utilizing its buffers to steady the external front.
Shanti Lal Jain, MD, and CEO of Indian Bank said allowing standalone primary dealers to offer forex services as authorized dealer category banks will strengthen the forex market.
By enabling cross border inward bill payment system, ease, and convenience of NRIs will improve along with the forex inflows, he added.
Murali Ramakrishnan, chief executive of South Indian Bank, said the policy calibration measures have to be seen from the macro perspective of trying to balance both growth and inflation amid volatile times.