RBI Monetary Policy: RBI raises repo rate to 6.25%
The Reserve Bank of India increased its key lending rate by a more modest 35 basis points to 6.25 percent, citing a slowdown in inflation after three consecutive 50 basis points (basis points) hikes to contain price pressures that remain above the top of the range. her target audience.
The Monetary Policy Committee (MPC), made up of three members of the RBI and three outside members, raised the key lending rate, also known as the repo rate, by 0.35 percent to 6.25 percent with a five-to-six majority.
The revolving deposit facility rate and the marginal revolving facility rate were also increased by the same amount to 6.00 percent and 6.50 percent, respectively.
The RBI cited easing price pressures for the smaller rate hike after consumer-price-based inflation fell to a three-month low of 6.77 percent in October from a year ago.
This is in line with broad market expectations for a moderation in rate hikes, given that the central bank had advanced its tightening policy, with forecasts that inflation was likely to peak in September and favorable base effects pushing the price hike trajectory below 6 percent. would lead. from early next year.
“The RBI’s decision to raise the repo rate by 35 basis points to 6.25 percent is in line with expectations. The decision was made to contain inflation, which remains above 4 percent. It is the fifth increase this year, which shows how persistent the Inflationary trends have been, but the view is that while inflation remains high, it is moderating and rates are somewhere near their peak,” said Adhil Shetty, CEO of Bankbazaar.com.
But RBI Governor Shaktikanta Das said inflation remains high and the fight against inflation must continue as risks remain. The majority position of the MPC is the withdrawal of an accommodative position.
“Global inflation remains high and broad-based in the aftermath of the Russia-Ukraine war. Retail inflation forecasts remain at 6.7 percent for FY23 and we will keep Arjuna’s eye on evolving inflation dynamics,” said the governor.
The statement comes amid expectations that price pressures are likely to have peaked and concerns about economic growth are resurfacing.
Following an increase of 40 basis points in May and 50 basis points each in June, August and September, this is the fifth consecutive increase, taking the repo rate to its highest since April 2019.
Since May, the RBI has raised benchmark rates by a total of 2.25 percent to reduce domestic retail inflation, which has consistently breached the upper limit of the central bank’s tolerance margin of 2-6 percent in any month this year.
While Wednesday’s rate hike is only a smaller one, it will still weigh heavily on already tight monthly household budgets, which face higher borrowing costs and an increase in the price of almost everything.
Indian banks will certainly pass on the latest RBI rate hike to customers immediately, as recent months have shown, making loans more expensive and leading to higher assimilated monthly installments (EMIs).
“All consumer loans have become more expensive this year. Borrowers are under pressure from rising interest rates and rising EMIs. The deposit rate, which has not kept pace with repo rate increases, is also now rising. On December 2, 38 banks made an offer FD (fixed deposit) rates of 7.00 percent or more on selected terms. Prepaying your home loan as and when money is available can work wonders and shorten your explosive loan term,” added Mr. Shetty, CEO of Bankbazaar.com, please.
The wave of relatively large interest rate hikes has led to fears that the fight against inflation could also put a brake on economic growth. the bank’s hand to interrupt walks at some point.
The RBI lowered its growth forecast for the current fiscal year from 7.0 percent in September to 6.8 percent.
But Mr Das said India’s economy remains resilient and is seen as a bright spot in a gloomy world.
“Despite a marginal downward revision in GDP growth to 6.8 percent, India remains the fastest growing major economy. In an interconnected world, we cannot remain completely disconnected. The biggest risk remains the headwinds of global geopolitical tensions,” added the RBI governor.
