RBI MPC meeting today: repo rate increased by 35 basis points to 6.25%; FY23 GDP is anticipated to be 6.8%

  • Dec. 7, 2022, 11:27 a.m.

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Wednesday hiked the repo rate by 35 basis points (bps) to 6.25 percent with immediate effect, RBI Governor Shaktikanta Das announced.

The RBI policy rate is now at its highest level since August 2018.

This is the fifth rate hike by the central bank in this financial year. Prior to this, the RBI had raised the repo rate – by 40 bps in an off-cycle meeting in May and 50 bps in JuneAugust and September.

Most market experts expected the MPC to raise the repo rate by 35 basis points in this meeting to tame the raging inflation, which has continued to remain above the 6 percent mark for the 10th straight month in October.

The RBI governor further announced that the MPC decided to remain focused on the withdrawal of accommodation and added that the standing deposit facility (SDF) rate stands adjusted to 6.00 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent.

During his speech, the RBI governor said that the policy rate remains accommodative and noted that the core inflation is indicating stickiness. The medium-term inflation outlook is exposed to global developments and weather.

Commenting on India’s economic growth, Das said the growth is supported by the rural, manufacturing, and services sectors.

"The agriculture sector remains resilient. Manufacturing and services PMI for India in November were among the highest in the world. "Going ahead, investment activity will get support from government capex," he said.

Das said that the RBI’s GDP growth forecast for the current financial year (FY23) is 6.8 percent. The growth has been reduced from the RBI’s previous estimate of 7 percent.

The RBI chief estimated the economic growth for the third quarter (Q3) of FY23 at 4.4 percent (down from 4.6 percent earlier) and for the fourth quarter (Q4) at 4.2 percent (down from 4.6 percent earlier). Additionally, the RBI’s GDP growth forecast for April-June 2023 (Q1 FY24) was lowered to 7.1 percent from 7.2 percent, and GDP growth for July-September 2023 is seen at 5.9 percent.

He added that despite a marginal downward revision in GDP growth to 6.8 percent, India will remain the fastest-growing major economy in the world. Das said that the central bank’s actions will be nimble for the best interest of the economy. 6.8 percent growth estimated in FY23 indicates a very strong growth impulse against the global backdrop.

Speaking about inflation, Das said the RBI sees the FY23 CPI estimate at 6.7 percent. It remains unchanged from the previous estimate by the central bank.

The CPI inflation forecast for the October-December quarter (Q3) was raised to 6.6 percent from 6.5 percent, and the forecast for the January-March quarter (Q4) was raised to 5.9 percent from 5.8 percent.

The CPI inflation forecast for the April-June quarter (Q1 FY24) was retained at 5.0 percent, and the retail inflation for the July-September quarter (Q2 FY24) is seen at 5.4 percent.

Speaking on liquidity, Das said that the RBI is ready to conduct liquidity adjustment facility (LAF) operations to infuse liquidity into the system and that liquidity conditions are set to improve. He said that the system's liquidity remains in surplus.

Das said that there will be no let-up in efforts to bring down inflation. He said that the RBI remains in contraction mode but is ready to step in to provide liquidity. Market participants must wean themselves away from the overhang of easy liquidity conditions.

Speaking on the currency front, Das noted that from April to October, the rupee appreciated by 3.2 percent in real terms, even as major currencies depreciated, and the rupee should be allowed to find its level. He said that the size of the forex reserves is comfortable and has increased. The RBI will restore normal market hours of 9 am-5 pm for call, CP, CD market.

Author : Rajdhani Delhi Representative

Rajdhani delhi representative

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