RBI Governor Live: MPC Hikes Repo Rate By 40 Basis Points, CRR Hiked By 50 Basis Points

Concluding his comments, RBI governor Das said that the central bank would remain proactive and flexible in light of fast changing global and local domestic environment.

Quoting Mahatma Gandhi, Das said: "I have had my share of disappointments, darkness, but my faith has conquered every one of my difficulties."

The surprise announcement of significant monetary policy tightening from the RBI has pushed up bond yields. The monetary policy tightening has come in the form of a 40 basis point hike in the repo rate to 4.4%. Alongside the cash reserve ratio has been hiked by 50 basis points to 4.5%.

The 10-year yield has surged to 7.42% from near 7.20% before the announcement.

In keeping with the stance of withdrawal of accommodation, the RBI has decided to hike the CRR by 50 basis points to 4.5%. This will withdraw about Rs 87,000 crore from the banking system.

The average surplus liquidity in the banking system was at over Rs 7 lakh crore in April, Governor Das said. This had led to the weighted average call rate dipping below the standing deposit facility rate, he said.

Even with the CRR hike, the RBI will ensure adequate liquidity for productive needs of the economy.

The RBI governor explained the inflation outlook as follows:

• Global food price increased have filtered through into India.

• High frequency indicators suggest that food prices will remain high.

• Prices of edible oils may firm up further.

• Elevated feed costs are translating into elevated poultry and dairy product.

• Global oil prices holding above $100 per barrel and are feeding into local fuel prices.

• The strengthening of inflationary pressures, together with global price shocks, put upward pressure on inflation forecasts.

In these conditions, it is important for monetary policy to focus on withdrawal of accommodation.

Inflation outlook needs resolute and timely response to ensure that long-term inflation expectations are anchored.

An MPC action at this juncture will help ensure macroeconomic stability. It also decided to remain accommodative while focusing on withdrawal of accommodation.

India's monetary policy committee held an emergency meet and decided, unanimously to hike the repo rate by 40 basis points.

The repo rate stands revised to 4.40%. The standing deposit facility rate will stand 25 basis points below that at 4.15% and the marginal standing facility rate will be at 4.65%.

In addition, the RBI has hiked the cash reserve ratio by 50 basis points to 4.5%.

Reserve Bank of India governor Shaktikanta Das said that inflation pressures are becoming more acute. This, while the global economic recovery is losing traction.

The RBI has demonstrated its resolve not to be bound by rule book and deploy conventional and unconventional tools, Das said. The Indian economy has managed to weather the shock so far. We have also been able to ensure macroeconomic stability. he added.

The situation is dynamic and fast-changing and actions have to reflect that.

While there was no indication on the subject of the RBI governor's statement, bond yields have risen in trade on Wednesday.

The 10-year bond yield rose 9 basis points.

Bloomberg reported that traders are speculating about the possibility of an unscheduled rate hike.

Bond markets are also bracing for the outcome of the U.S. Federal Reserve's rate setting meeting due to conclude on Wednesday.

The Federal Open Market Committee is expected to raise interest rates by a half point at the conclusion of its two-day policy meeting on Wednesday, its largest hike since 2000, and also announce plans to reduce the size of its bloated $8.9-trillion balance sheet, Bloomberg reported.

Reserve Bank of India Governor Shaktikanta Das will make an unscheduled statement at 2 p.m., the central bank said in a post on its official Twitter handle.

The central bank gave no indication on the subject of this statement.