Timing Of RBI's Rate Hike Came As A Surprise: FM Nirmala Sitharaman On Repo Rate Hike
Sitharaman said the RBI gave indications in the last MPC meeting that it is time for them to also act, adding the hike was part of a synchronised action by major central banks across the globe.
New Delhi: Underlining the rising cost of funds will not impact the Central government’s planned infrastructure investments, Union Finance Minister Nirmala Sitharaman has said the recent interest rate hike by the Reserve Bank of India (RBI) was not surprising for her but the timing was. Sitharaman said the timing of the RBI’s rate hike came as a surprise but not the action itself as people thought it should have been done anyway. The Finance Minister said it came as a surprise because it’s between the two MPCs (monetary policy committee) meetings. But the US Fed had been saying it all the while, she added addressing an award function organised by the Economic Times in Mumbai last evening in her first reaction to the rate hike, PTI reported.
Sitharaman said the RBI gave indications in the last MPC meeting that it is time for them to also act, adding the hike was part of a synchronised action by major central banks across the globe.
Stating it was in a way a synchronised action, the Finance Minister said Australia did it and the US did it that night.
“So, I see a greater understanding among central banks nowadays. But the understanding of how to handle recovery from the pandemic is not fully unique or typical for only India. It's a global issue,” Sitharaman said.
“And even as we handled that recovery, inflation, which was really festering and festering at some unbelievable highs, let us say in the US and Britain, not so much in our country...Still, the challenge of recovery versus inflation seems to be following a particular template that's across the globe now,” she added.
The Finance Minister, however, asserted the central bank’s decision will not impact the government’s planned huge infrastructure investments running into tens of billions of dollars.
Commenting on the economic sanctions against Russia after its invasion of Ukraine, she said the blockades were constraining us as traditional buyers from Russia were shifting to sources from the Indian basket of crude, 80-85 percent of which is from the Middle East.
Making it clear that India will continue to buy crude from wherever it was available cheaply, Sitharaman said the sanctions have resulted in people rushing to alternative sources where countries like us are there for decades.
“Now suddenly it will be crowded with more people who want to buy the same thing. So, supply and price factors will now have its ramification on us,” she added.
Sitharaman further said: “In matters related to our oil consumption and buying it from the source which gives us a concessional rate, we've asserted our right in doing that.”
“We've been explaining that we'll certainly purchase it, so it is something that hasn't been said for the first time. We'll go ahead with what is good for us. We need cheap fuel. If it is available, why won't we want to buy it?” she added.
The Finance Minister said that there was an increase in prices of fertilisers even before the war.
“The government had to seek extra spending approval during the supplementary demands because of the way crude oil was playing up and the rise in commodity prices due to supply disruptions,” she added.
Sitharaman’s remarks came as the RBI, citing increased inflation pressures following the Ukraine war and the resultant spike in crude oil prices, for the first time since August 2018 earlier on May 4 delivered a blunt 40 basis points increase in key repo rate to 4.40 percent and also hiked the cash reserve ratio by 50 basis points to 4.5 percent after an unscheduled meeting of the rate setting panel.
The retail inflation printed at 6.9 percent in March and the April reading is forecast to top 7.7 percent.
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