In a statement, Nirmala Sitharaman, the Finance Minister of India, stated that she was not really surprised by the Reserve Bank’s latest decision to raise the interest rate. However, she was surprised by the timing when it was done. She further asserted clearly that higher funding costs would not hinder the government’s plans for investment in infrastructure development projects.
On May 4, following an unplanned conference of RBI’s rate-setting panel, the national bank raised the main repo rate up by 40 basis points to 4.40 per cent and the cash reserve requirement up by 50 basis points to 4.5 per cent. Since August 2018, this was RBI’s first rate hike that the institution alleged heightened inflation expectations due to the Ukraine-Russia war crisis and the ensuing surge in the prices of crude oil. It is further expected that consumer price inflation will reach 7.7 per cent in April, up from the March estimate of 6.9 per cent.
“While the scheduling of the RBI’s rate increase was a surprise, the actual decision itself was not, since it was widely expected. It caught everyone off guard since it fell in the middle of two MPC meeting sessions. In fact, the U.S. Federal Reserve has already been saying it for a long time,” It was Ms Sitharaman’s initial response to the rate increase when she spoke at a gathering in Mumbai on Saturday night. Ms Sitaraman also said that the RBI had sent signals at the most recent MPC meeting that it was an appropriate time for them to take a step as well and that the rate rise was part of a coordinated global move by the leading central banks.
“A kind of synchronised activity occurred. Australians did it that night, as did Americans. It seems that the world’s central banks are getting along better these days. However, India’s grasp of how to recover from the epidemic is not entirely unique or normal. It is a problem that affects people throughout the world.
“The fact that inflation was not as bad in our nation as it seemed to be in the United States and the United Kingdom during this time of recovery is a testament to how well we managed the recovery. Though it appears to be pursuing the same pattern throughout the world today, the struggle of recovery vs inflation, “she informed.
It is true that she was particularly eager to stress out that the national bank’s decision would not impact the government’s planned tens of billions of dollars in infrastructure projects. Her comments followed Russia’s invasion of Ukraine, in which she claimed that the limits were putting a strain on financial institutions since Russian buyers were switching to supply from Indian baskets of oil, which include 80 to 85 per cent of oil sourced from the Middle East. It was anticipated that the price of the Indian crude basket would increase as a consequence of this modification.
“Countries like India have been providing alternate supplies for decades as a consequence of the sanctions. It is going to become a lot more congested now that more individuals are interested in the same subject. It is now time for the effects of supply and demand and price to be felt by everyone.” In a statement, she made it clear that India will continue to purchase crude oil from wherever source it becomes available at a reasonable cost.
“We have claimed our right to acquire our oil at a discount from a supplier that provides us with a favourable rate in this regard. It is not something we have stated for the first time; therefore, it is not something we are just now saying. We are going to do what is best for us. Fuel costs are soaring, and we need to find a solution. Why wouldn’t we want to purchase it if it is on the market? “she said.
Before the conflict, Ms Sitharaman noted that the fertiliser costs also went up. An increase in commodity costs and the volatility of crude oil prices necessitated a request to Congress for more funding during the current round of supplemental needs.
