The Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced that the standing deposit facility (SDF), which represents the lower band of the interest rate corridor, has been raised to 5.15% from 4.65% earlier. The marginal standing facility (MSF) and bank rate were revised to 5.65%.

The Monetary Policy Committee voted unanimously to hike the benchmark interest rate by 50 basis points (bps) to 5.4% with immediate effect. It is now back to the pre pandemic levels and highest since 2019. The RBI Policy stance is retained at Withdrawal of Accommodation.

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RBI Governor Shaktikanta Das said India is facing USD 13.3 billion capital outflow in last
few months. Consumer price inflation has eased from its surge in April but remains uncomfortably high and above upper threshold of target, said Das.

He added “volatility in global financial markets is impinging upon domestic financial markets leading to imported inflation”.

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Surplus liquidity in the banking system has come down to Rs 3.8 lakh crore, from Rs 6.7 lakh crore in April-May, said Das, adding that rise in term deposit rates should increase liquidity for financial sector.

“Inflation is expected to remain above the central bank’s 6% threshold in the second and third quarters of this fiscal year, for which the MPC stressed that sustained high inflation could destabilise inflation expectations and harm growth in the medium,” said Governor in his statement.

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Rupee has fared much better than many reserve currencies or Asian currencies, said Das. He added, “depreciation of rupee is due to strength of the dollar, rather than any weakness in India’s macro fundamentals. Remain focused on maintaining the stability of the rupee”.