Connect Gujarat
Business

RBI raises repo rate by 35 bps

The RBI has raised the repo rate (the rate at which it lends commercial banks) in each of the policy meetings since May 2022

RBI raises repo rate by 35 bps
X

The Reserve Bank of India's monetary policy committee on Wednesday expectedly raised the policy repo rate by 35 basis points (0.35 per cent).

However, it decided to continue with its "withdrawal of acommodation" stance, even as it lowered its GDP growth expectations for the current financial year amid global headwinds.

The RBI has raised the repo rate (the rate at which it lends commercial banks) in each of the policy meetings since May 2022.

Including today's hike, the repo rate has now been raised to 6.25 per cent from 4 per cent when it held an unscheduled meeting in May, thats a 2.25 per cent cumulative increase.

With inflation showing some early signs of easing and the US Federal Reserve also likely to slowdown its future rate increases, the RBI was expected to moderate its tightening, following the 50 bps points repo rate hike over the previous three MPC meets.

In his assessment, RBI Governor Shaktikanta Das noted that the global economy is still marred by profound shocks and unprecedented uncertainty, and mixed signals are emanating from the geopolitical situation and financial market volatility.

He pointed that the IMF has projected that more than one-third of the global economy will contract this year or next year.

Yet, in a hostile international environment, the Indian economy remains resilient, drawing strength from its macroeconomic fundamentals, and the country's financial system remains robust and stable, he added.

Still, he said an interest rate hike was warranted to keep inflation, which remains above RBI's upper end of the 2-6 per cent target band, in check.

He pointed that adjusted to inflation the policy rate still remained accommodative.

Under the RBI Act, the inflation targeting framework mandates the central bank to maintain consumer price index (CPI) inflation at 4 per cent, with an upper tolerance limit of 6 per cent and lower limit of 2 per cent.

Retail inflation has been trending above 6 per cent for over three quarters now. It hit a five-month high of 7.4 per cent in September, before easing to 6.77 per cent in October.

Das noted that core inflation (price changes in goods and services excluding food and fuel) was exhibiting stickiness.

RBI expects inflation in the current financial year ending March 2023 to come in at 6.7 per cent; while in the October-December quarter it is projected at 6.6 per cent, its likely to fall to 5.9 per cent, which is below the 6 per cent upper limit, in the January-March quarter.

Inflation in the April-June quarter is further seen easing to 5 per cent, before rising again to 5.4 per cent in July-September.

Overall, through the next 12 months, inflation is expected to trend above the 4 per cent target.

While Indian economy is expected to remain resilient, its not completely immune to global uncertainties and slowdown in the developed world.

In this backdrop, the RBI has marginally reduced its real GDP growth expectations for the current financial year to 6.8 per cent (4.4 per cent in December quarter and 4.2 per cent in March quarter), versus 7 per cent it had forecast earlier.

Looking ahead in the 2023-24 financial year, RBI sees real GDP growing at 7.1 per cent in the April-June quarter and 5.9 per cent in July-September.

Even after the downward growth revision, India will still be among the fastest growing major economies in the world, he stressed.

Next Story