Faced with soaring inflation, the Indian central bank’s decision “flowed from source”, according to its governor, Shaktikanta Das. Unsurprisingly and for the second time in five weeks, the Reserve Bank of India (RBI) therefore increased its main interest rate on Wednesday, June 8. The repo rate, the rate at which Indian commercial banks borrow, was raised by 50 basis points to 4.90%. The challenge for the issuing institution is to contain record inflation without harming the growth of the world’s sixth largest economy.
At the beginning of May, the RBI had already carried out an unexpected increase in this rate by 40 basis points, the first in nearly four years. Until then, the RBI had sided with keeping rates low to help the economy recover post-pandemic from Covid-19. Since March 2020, it had lowered the repo rate by 115 basis points. But the surge in global inflation caused by the war in Ukraine prompted it to carry out a first rate hike, just hours before the US Federal Reserve announced its biggest rate hike in more than two decades, the May 4.
The RBI therefore continues on this momentum. “The war in Europe continues, and we are faced with new challenges every day that accentuate the existing disruptions in supply chains. As a result, food, energy and commodity prices remain high”, Shaktikanta Das said on June 8 at the end of a two-day meeting of the institution’s monetary policy committee. India is more than 80% dependent on imports for its crude oil supply, and is also the world’s largest importer of edible oils.
“Everything is more expensive”
Since the Russian invasion of Ukraine on February 24, the South Asian giant has therefore seen prices rise sharply in all sectors. In April, inflation recorded its highest level in eight years. The consumer price index was 7.79% year-on-year and food inflation reached 8.38%. For the fourth month in a row, inflation is above the 6% tolerance threshold set by the central bank.
“Everything is more expensive because of the rise in oil prices and since the beginning of the year the price of tomatoes has gone up from 30 to 50 rupees [de 0,36 à 0,60 euro] the kilo. Where customers used to buy 1 kilo of vegetables, they are now limited to 500 grams, their basket has halved”, says Sonu, a vegetable seller based in the popular market of Kotla, in the south of New Delhi. The early heat wave that has hit India since March 11 has also damaged the harvests of wheat, mangoes and also tomatoes, an essential element of Indian cuisine, accentuating the upward pressure, which weighs particularly heavily on the poorest households.
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