Interest rate hike wasn’t surprising, timing was: Finance Minister Sitharaman 

The Finance Minister asserted that the rising cost of funds will not impact the government’s planned infrastructure investments

Finance Minister Nirmala Sitharaman said the recent interest rate hike by the Reserve Bank was not surprising for her but the timing was, asserting that the rising cost of funds will not impact the government’s planned infrastructure investments.

For the first time since August 2018, RBI had on May 4 delivered a blunt 40 basis points increase in key repo rate to 4.40%, and also hiked the cash reserve ratio by 50 basis points to 4.5% after an unscheduled meeting of the rate setting panel, citing increased inflation pressures following the Ukraine war and the resultant spike in crude oil prices.

Retail inflation printed at 6.9% in March and the April reading is forecast to top 7.7%.

“The timing of RBI's rate hike came as a surprise but not the action itself as people thought it should have been done anyway. It came as a surprise because it is between the two MPCs (Monetary Policy Committee) meetings. But the U.S. Fed had been saying it all the while,” Ms. Sitharaman said in her first reaction to the rate hike while addressing an award function organised by the Economic Times on Saturday evening in Mumbai.

She said that in the last MPC meeting, the RBI gave indications that it is time for them to also act, and the hike was part of a synchronised action by major central banks across the globe.

“In a way, it was a synchronised action. Australia did it, and the U.S. 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.”