RBI goes for another 50bps repo rate hike in 2 months – ET Auto

Reserve Bank of India Governor Shaktikanta Das

New Delhi: After May’s surprise 40 basis-point off-cycle hike, Reserve Bank of India (RBI) on Wednesday raised the repo rate by another 50 basis points, Governor Shaktikanta Das said.

The monetary policy committee (MPC) unanimously decided to raise the rates to 4.9% on the back of inflationary pressures and higher supply shocks and has decided to keep stance withdrawal from accommodative.

Repo is the rate at which the central bank lends short-term funds to banks.

RBI sees inflation at 6.7% in FY23 with risks evenly balanced. The projection pegs inflation at 7.5% in Q1, 7.4% in Q2, 6.2% in Q3 and 5.8% in Q4. The projections mean that the central bank will, for the first time, have to explain a failure of its monetary policy under the new framework. The inflation forecast assumes a normal monsoon and an average oil price of USD 105 per barrel.

“Our steps will be calibrated, focussed on bringing down inflation to target level,” Das said. Information for April-May suggests domestic economic recovery is firm, he added.

“Urban demand is recovering, rural demand is also improving and while urban demand is recovering, rural demand is gradually improving. Surveys show capacity utilisation in the manufacturing sector increased to 74.5 percent in January-March,” the RBI Governor added.

The central bank added that higher inflation has been a concern for central banks all over including India’s as the uncertain nature of the Russia-Ukraine war has compounded supply side disruptions.

RBI expects GDP growth to broadly evolve around the outlook provided at the time of the April review. The real GDP growth for FY23 is retained at 7.2% with risks broadly balanced. The forecast includes growth of 16.2% in Q1, 6.2% in Q2, 4.1% in Q3 and 4% in Q4.

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