RBI rate hike came as a surprise because…: Treasury Secretary Nirmala Sitharaman

The Reserve Bank of India‘s (RBI) move to raise interest rates is part of a synchronized action by global central banks and came as a surprise only because it came between policy reviews, Finance Minister Nirmala Sitharaman said.

“It’s the timing that came as a surprise to many, but the act that people thought should have been done anyway — how much could have varied,” she said The Economic Times Awards for Corporate Excellence yesterday in Bombay. “It came as a surprise because it was between two monetary policy reviews.”

The finance minister, who received an award at the event for her handling of the country’s economy during the pandemic, noted that in its policy review in April, the RBI indicated that it was time to act on inflation.

The minister stressed that she did not see the central bank’s move affecting the government’s infrastructure investments.

The RBI hiked its policy rate by 40 basis points to 4.40 percent on Wednesday. It also increased the cash reserve ratio by 50 basis points.

The central bank cited rising inflation, geopolitical tensions, high crude oil prices and global raw material shortages as reasons.

This was the first rate hike since August 2018 and would make borrowing more expensive for both businesses and individuals. The latest surprise hike completely reverses the Covid-backed off-cycle rate cut of May 2020.

Retail inflation in the country was nearly 7 percent in March, remaining above the upper end of the RBI’s 2-4 percent target range for the third straight month.

The minister also said it made “perfect sense” to buy oil from Russia when it is offered at a discounted price, especially with rising inflation.

“I thought we spent a lot of time explaining India’s position, not only about the abstentions (on Ukraine) on the vote (at the United Nations), but also on the fact that if Russia will take us to a At a discounted price, we will still buy it because it makes perfect sense, especially when the world is stressed by inflation,” she said.

“I think we’re going to move on with what’s good for the country. We need cheaper fuel. If it’s available, why don’t we want to buy it? We will buy it,” added the minister.

Russia faces severe Western sanctions over its attack on Ukraine. While the US has banned Russian oil imports, the European Union and the UK have launched phased plans to halt imports.