Home Interest rate The stage is set for another interest rate hike by the Reserve Bank of India: The Tribune India

The stage is set for another interest rate hike by the Reserve Bank of India: The Tribune India

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Tribune press service

New Delhi, May 14

Despite Central and State borrowing becoming more expensive, the stage is set for an interest rate hike by RBI next month as three crucial indicators remained stubborn to change.

In addition to inflation remaining above the RBI’s upper 6% tolerance band since January this year, latest figures showed that India’s foreign exchange (forex) reserves continued to decline for nine consecutive weeks. They are now at $595.95 billion, the lowest in 12 months.

Another set of figures showed that despite the 0.40 basis point hike on May 4 in the repo rate – at which the RBI lends to banks – foreign financial institutions (FIIs) remained net sellers. This month, until May 13, FII sold shares and securities worth Rs 1 lakh crore and bought 63,000 crore worth of shares, thus remaining net sellers of around Rs 37,000 crore. FIIs are attracted to rising interest rates in developed countries, especially the United States, to contain domestic inflation.

As of May 13, foreign exchange reserves fell by 1.77 billion dollars against a drop of 2.695 billion dollars. The main reason was a decline in foreign currency holdings of $1.97 billion and a marginal decline in India’s reserve position at the IMF. Increases in gold reserves of $135 million and special drawing rights (SDRs) of $70 million were not enough to cover the drop in foreign currency holdings.