The Reserve Bank of India's rate-setting panel MPC (Monetary Policy Committee) has announced a 25 basis points (bps) hike in the key repo rate to 6.50%, while withdrawing the “accommodative stance” to tame high inflation in the country. With this, the RBI has increased the repo rate for the 6th time in a row.
The RBI Governor Shaktikanta Das said the standing deposit facility rate has been revised to 6.25% from 6% earlier, whereas the marginal standing facility and bank rate have been hiked 25 basis points to 6.75%.
The RBI's MPC met for the first time this year, and also after Finance Minister Nirmala Sitharaman presented this year's Union Budget 2023-24 on February 2, 2023. Das said the global economic outlook doesn't look as grim now as it did a few months ago. “Growth prospects in major economies have improved, while inflation still remains on well-above target in major economies," said the RBI governor.
He said unprecedented events of the last three years have put monetary policy to test across the world. "Emerging market economies are facing sharp tradeoffs between supporting economic activity and controlling inflation while preserving policy credibility."
The RBI governor said since the year 2023 marks the 75th year of the central bank's public ownership, it's an opportune moment to reflect on the evolution of monetary policy. "Multiple indicator approach was adopted in April 1998. Since the early 1990s, the RBi focussed on market reforms and institutions building."
The Reserve Bank of India's (RBI) repo rate hike matched with estimates of several economists and financial institutions, who expected the MPC to either go for a 25 basis points repo rate hike or put a pause on increasing key rates, in the wake of easing retail inflation in India, and the US Federal Reserve going slow on its rate hiking spree.
In its last MPC meeting, the RBI hiked the key repo rate by 35 basis points to 6.25%. The central bank this time said the inflation in the country is expected to average 5.6% in the 4th quarter of 2023-24, while it'll remain above the 4% target in the fiscal year FY24. Notably, India's headline retail inflation eased to a one-year low of 5.72% in December 2022, down from 5.88% in November 2022, thus staying below the RBI's upper threshold of 6% for the second month in a row.
The RBI's latest forecast on the country’s GDP growth pegs it at 6.4% for 2023-24, with Q1 growth estimated at 7.8%, Q2 at 6.2%, Q3 at 6% and Q4 at 5.8%, respectively.
The RBI governor's remarks today echo his statements during the 22nd FIMMDA-PDAI Annual Conference held on January 27 in which he said despite hostile and uncertain challenges, the Indian economy remains resilient, drawing strength from its macroeconomic fundamentals.
