RBI hikes repo rate to 5.40 percent

New Delhi, Aug, 5: The Reserve Bank of India (RBI) in the Monetary Policy Committee’s (MPC’s) statement on Friday announced a rate hike of 50 basis points to 5.40 percent, the highest since 2019. The bi-monthly meeting of the RBI MPC started on Wednesday, and RBI Governor Shaktikanta Das on Friday announced that the MPC unanimously decided to hike the policy rate.

 

 

 

Das said, "MPC decided to focus on withdrawal of accommodation to keep inflation within target while supporting growth". RBI MPC revised the Marginal Standing Facility (MSF) and bank rates to 5.65 percent from 5.15 percent, announced Governor Das.

 

 

 

The real GDP projection for FY23 was retained at 7.2 percent with Q1 at 16.2 percent, Q2 at 6.2 percent, Q3 at 4.1 percent, and Q4 at 4 percent, with risks broadly balanced, governor Das said. Das said that the consumer price inflation remains uncomfortably high and inflation is expected to remain above 6 percent. He projected CPI inflation for the current fiscal year at 6.7 percent and that for FY 2023-24 at 5 percent. The central bank's rate hike, the third in the current financial year, came in a bid to tame the inflationary pressure and protect against further rupee depreciation. In its off-cycle monetary policy review in May, the RBI hiked the policy repo rate by 40 basis points or 0.40 percent to 4.40 percent. Then in June, the RBI further raised the rate to 4.90 percent, a 50 basis points increase.

The International Monetary Fund (IMF) has recommended that India should gradually withdraw its fiscal and monetary policy stimulus, develop export infrastructure, and negotiate free-trade agreements with key trading partners to provide a sustainable boost to exports to maintain external sector balance at a comfortable level over the medium term. India's 10-year benchmark bond yield rose to 7.2317% after the RBI MPC decision, while the rupee was trading at 79.03 per dollar.

 

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Overall system liquidity continues in surplus, with average daily absorption under the LAF at Rs 3.8 trillion during June-July. Money supply (M3) and bank credit from commercial banks rose (y-o-y) by 7.9 percent and 14.0 percent, respectively, as of July 15, 2022. India’s foreign exchange reserves were placed at $ 573.9 billion as of July 29, 2022. Read the full statement of RBI MPC here.