The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on Wednesday hiked its key lending rate, repo rate, by 25 basis points (bps) to 6.50 per cent. RBI Governor Shaktikanta Das announced about the repo rate hike at the end of the three-day long meeting of the MPC. At the start of the address, Das said, "It's a season of hope and optimism.... It's an opportune moment to reflect on the evolution of Monetary Policy."
Further, the Governor, while announcing MPC's decisions added that inflation is projected at 6.5 per cent for current fiscal with Q4 at 5.7 per cent. The central bank also expects real GDP growth for financial year 2023-24 at 6.4 per cent. As far as inflation is concerned, the RBI sees it as sticky but expects it to moderate and yet remain above 4 per cent, with retail inflation expected to average 5.6 per cent in Q4.
The repo rate hike decision in RBI’s MPC meeting was taken at the backdrop of controlling inflation, spurring growth and liquidity management. The MPC decided to hike this repo rate in by the majority of 4:6.
Before this, in the last MPC held in December 2022, the central bank opted for a 35 bps rate hike while focussing on the ‘withdrawal of accommodation.’ Even this time, the RBI's MPC kept the same stance. In December, the RBI also lowered the economic growth projection to 6.8 per cent from the earlier estimate of 7 per cent for the fiscal under consideration.
Over the last couple of months, the RBI opted in favour of tightening its policy by raising the repo rates at different paces in order to control inflation. Drawing cues from the slowing world economy, especially by looking at the stance of the US Federal Reserve (Fed) and Bank of England (BoE), even RBI took its decisions on repo rate to manage the economy.
Even though the commodity, food and energy prices have relatively eased, inflation and growth still remain matters of concern as the world economy braces itself for a potential recession. Before the RBI’s MPC meeting ended, while several analysts expected a repo rate hike of 25 bps, others favoured a ‘no repo rate hike’ stance as the Economic Survey and the Union Budget 2023-24 showed Indian economy in a bright spot.
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