Agencies
Mumbai, August 05:
The monetary policy committee of the Reserve Bank of India has raised the repo rate by 50 basis points to 5.40 per cent in order to contain the persistently high inflation.
Raising interest typically suppress demand in the economy, thereby helping inflation to decline.
The three-day monetary policy committee meeting commenced on Wednesday.
Today’s hike takes the repo rate above pre-pandemic levels of 5.15 per cent.
In line with the global trend of monetary policy tightening to cool off inflation, the RBI has so far hiked the key repo rates — the rate at which the central bank of a country lends money to commercial banks — by 140 basis points.
Meanwhile The RBI on Friday retained its retail inflation forecast for current fiscal year at 6.7 per cent amid geopolitical developments and higher global commodity prices, hoping inflationary pressures to ease further.
In its previous monetary policy review in June, it had projected retail inflation for 2022-23 at 6.7 per cent, up from 5.7 per cent forecast in April.
The RBI raised the benchmark lending repo rate by 50 basis points to 5.40 per cent.
RBI Governor Shaktikanta Das said inflation in second and third quarter of the ongoing fiscal year is expected to remain above the upper tolerance level of 6 per cent.
The central bank aims to keep retail inflation in a band of 2-6 per cent.
Highlights of RBI monetary policy
Following are the highlights of the RBI’s fourth monetary policy review of fiscal year 2022-23 announced by Governor Shaktikanta Das:
* Key short-term lending rate (repo) raised by 50 basis points (bps) to 5.4 per cent; third consecutive hike
* In all, 140 bps hike in repo since May 2022 to check inflation
* GDP growth projection for 2022-23 retained at 7.2 per cent (pc).
* GDP growth projection: Q1 at 16.2 pc; Q2 at 6.2 pc; Q3 at 4.1 pc; and Q4 at 4 pc
* Real GDP growth for Q1:2023-24 projected at 6.7 per cent
* Domestic economic activity exhibiting signs of broadening
* Retail inflation projection too retained at 6.7 pc for 2022-23
* Inflation projection: Q2 at 7.1 pc; Q3 at 6.4 pc; and Q4 at 5.8 pc; Q1:2023-24 at 5 pc
* India witnessed large portfolio outflows of USD 13.3 billion in FY23 up to August 3
* Financial sector well capitalised and sound
* India’s foreign exchange reserves provide insurance against global spillovers
* Monetary Policy Committee decides to remain focused on withdrawal of accommodative stance to check inflation
* Depreciation of rupee more on account of appreciation of US dollar rather than weakness in macroeconomic fundamentals of the Indian economy
* RBI to remain watchful and focused on maintaining stability of rupee
* Rupee depreciated by 4.7 pc against US dollar this fiscal year till August 4
* India’s foreign exchange reserves remain fourth largest globally
* Mechanism to be activated to allow NRIs to use Bharat Bill Payment System for payments of utility and education on behalf of their families in India
* Next meeting of rate-setting panel scheduled for September 28-30, 2022.
