RBI expected to raise benchmark repurchase rate by quarter point to 5.50 per cent
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims·
Monetary policy and inflation management: a core GS3 topic regarding RBI's role in price stability.
Why in news
The Reserve Bank of India is expected to raise the benchmark repurchase rate to 5.50 per cent to combat inflation nearing 5 per cent and high oil prices.
Background
The Reserve Bank of India (RBI) is expected to hike the benchmark repurchase rate by a quarter point to 5.50 per cent. Bloomberg surveyed 41 economists, with 35 predicting the hike based on inflation nearing 5 per cent and oil prices exceeding $100 a barrel.
Facts for Prelims
- FactExpected benchmark repurchase rate: 5.50 per cent
- FactInflation target/level: Nearing 5 per cent
- FactOil price benchmark: Above $100 a barrel
Prelims practice question
With reference to the Reserve Bank of India's monetary policy, consider the following statements:
- The benchmark repurchase rate is expected to be raised to 5.50 per cent.
- Oil prices are currently trending below $50 a barrel.
- Inflation is currently expected to remain below 3 per cent.
Which of the statements given above is/are correct?
- (a)1 only
- (b)1 and 2 only
- (c)2 and 3 only
- (d)1, 2 and 3
Show answer
Answer: (a) 1 only — Statement 1 is correct. Statement 2 is incorrect: Oil prices are exceeding $100 a barrel. Statement 3 is incorrect: Inflation is nearing 5 per cent.
For Mains
Q. Discuss the role of the Reserve Bank of India's monetary policy tools in managing headline inflation amidst volatile global commodity prices.
Dimensions to cover in your answer
- Monetary transmission: Lag between repo rate hikes and retail lending rates
- Inflation-Growth trade-off: Balancing interest rate hikes with industrial demand
- External shocks: Impact of global oil price volatility on domestic fiscal deficit
Keywords: Monetary Policy · Repo Rate · Inflation Targeting · Liquidity Management · Macroeconomic Stability
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