The Reserve Bank of India on Friday raised the repo rate by 50 basis points (bps) to 5.90 per cent to tame inflation which remains above its comfort zone.
This is the fourth consecutive increase in the repo rate — the rate at which the RBI lends money to banks to meet their short-term funding needs — since May this year. It is also the third 50 basis points rate hike in a row by the RBI.
RBI had slashed the repo rate in March 2020 to help the economy deal with the disruptions caused by the Covid-19 pandemic.
The six-member Monetary Policy Committee (MPC), headed by the RBI Governor Shaktikanta Das, also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
“If high inflation is allowed to linger, it invariably triggers second order effects and unsettles expectations. Therefore, monetary policy has to carry forward its calibrated action on policy rates and liquidity conditions consistent with the evolving inflation-growth dynamics. It must remain alert and nimble,” Das said while announcing the policy.
The extraordinary global circumstances that caused the heightened inflationary pressure have impacted both advanced as well as emerging market economies. India is, however, better placed than many of these economies, he said.
The hike in repo rate was in line with the market expectations. This rise will result in higher EMIs for customers.
The MPC also lowered the real gross domestic product (GDP) for fiscal 2022-23 to 7 per cent, from a projection of 7.2 per cent announced during the August policy.
The headwinds from extended geopolitical tensions, tightening global financial conditions and possible decline in the external component of aggregate demand can pose downside risk to growth.
The inflation projection for the current year was retained at 6.7 per cent.
Speaking on the rupee, Das said the movement of the domestic currency has been “orderly” compared to most other countries.
