On Friday, the six-member Monetary Policy Committee of the Reserve Bank of India (RBI) decided to hike the repo rate by 50 basis points to 5.4 per cent, crossing the pre-pandemic level of 5.15 per cent.
“MPC decided to focus on withdrawal of accommodation to keep inflation within target while supporting growth”: RBI Governor
The MPC decided that the SDF rate would stands adjusted to 5.15 per cent and MSF rate and bank rate at 5.65 per cent.
Das said that the MPC has projected inflation at 6.7 per cent in 2022-23; CPI-based inflation for Q1- 2023-24 is projected at 5 per cent. Real GDP growth rate has been retained at 7.2 per cent for FY23. The bank credit growth accelerated to 14 per cent y-o-y.
RBI Governor Shaktikanta Das said that the CPI-based inflation is above comfortable level.
Das said that successive shocks to the global economy taking a toll on the Indian economy as well. The IMF has revised global growth projection downwards. He further said that the globalisation of inflation is coinciding with de-globalisation of trade.
Adding on, Das noted that the financial market has remained uneasy despite intermediate corrections, however, India is expected to be amongst the fastest-growing economy in the world.
“Rise in term deposit rates should increase liquidity for financial sector”, Das said. He said pointed out that edible oil prices are likely to soften further.
The RBI governor said that the domestic economic activity has been showing signs of broadening and the rural demand has shown mix trends.
This is RBI’s third rate hike in the current financial year. In its off-cycle monetary policy review in May, the RBI hiked the policy repo rate by 40 basis points or 0.40 per cent to 4.40 per cent. Then in June, the RBI further raised the rate to 4.90 per cent, a 50 basis points increase.
The repo rate is the interest rate at which the central bank lends funds to banks.
According to a BS poll, the MPC was expected to raise the repo rate by 35-50 bps from the current 4.9 per cent, taking the policy rate to pre-pandemic levels. The Repo rate was 5.15 per cent (February 2020) before the RBI started cutting interest rates to fight the economic slump amid the Covid-19 havoc.
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