Sudden shock by Reserve Bank of India

neerajsingh18

May 5

Sudden shock by Reserve Bank of India

Team Ambitiousbaba are here with a Current Affairs Special Series. In this series, candidates will be introduced to current affairs topics daily, which will not only improve their general awareness but also will ensure that the candidates do not lack in any current affairs topic. Today's Current Affairs topic is "Sudden shock by Reserve Bank of India"

The nature and timing of interest rate rise was surprising yesterday. So far, the Reserve Bank of India (RBI) Governor Shaktikanta Das had headed the markets that he doesn't believe in surprise moves. Although today's rate action came as a big shocker.

After being calmed down into self-satisfaction as recently as February that India's central bank will not tighten policy anytime soon, investors have swept the other way and are factoring in sharp increases by the monetary authority that is managing with surging inflation much like its counterparts globally.

Question: But why the RBI announced the rate hike suddenly with an unusual 40 bps hike in repo rate and another 50 bps increase in CRR.

Answer: The only possible, immediate reason for the RBI to take this decision a twin-shocker during an off-cycle meeting might be that it would have got data to assess that inflation may be going out of hand. And that the RBI wanted to act tough now, before it is too late. Price stability is central bank's primary mandate.

The central bank was highlighted inflation as primary concern in the last policy review. Thus it could have increased the repo rate in last policy itself in a smaller dose but it has followed by similar hikes. Instead, it prefers to shock markets with a bigger quantum hike.

Inflation shock:

The inflation data for March itself was a shocker as it was at 17-month high. It is the third consecutive month in which inflation goes up form above the 6 percent upper bound of the RBI mandate, averaging 6.3 percent in January-March.

The sharp rise in CPI inflation in March was driven by an increase in prices across all but one of the major groups of the basket, including food items.

Effect of sudden shock by RBI:

There is lot of volatility has been seen in share market, gold and commodity market and other sensitive sectors which are directly or indirectly relates with rates of RBI.

Blood bath was seen in yesterday's session of Share Market.

Question & Answer:

Q1. What is the repo rate after RBI's sudden hike?

Ans. 4.40%

Q2. After the RBI's recent hike, cash reserve ratio has been decided at what percent?

Ans. 4.50%

Q3. Who announced sudden hike of rates recently?

Ans. RBI governor Shaktikanta Das