Following the February MPC meet, the Reserve Bank of India has increased the repo rate by 25bps to 6.5%, taking it to the highest in four years.
Since retail inflation fell within the RBI’s tolerance band of 2% to 6% in the last two months of 2022, it was expected that there will be a slight increase in repo rate this time.
Since May last year, the central bank has increased the policy lending rate by 225 bps to contain inflation. In December, the repo rate was raised by 35bps.
Announcing the monetary policy statement on Wednesday, RBI Governor Shaktikanta Das said that the world economy does not look so grim now and in fact, inflation is coming down. Inflation in India is seeing signs of moderation. However, it will stay above 4%, he added. Also, further monetary policy action is warranted in India, he said.
The MPC decided by a 4:2 vote to remain focused on the withdrawal of the accommodative policy. The standing deposit facility rate will stand revised to 6.25% and the marginal standing facility rate and the bank rate to 6.75%.
The real GDP growth for 2023-24 is projected at 6.4% with Q1 at 7.8%, Q2 at 6.2%, Q3 at 6% & Q4 at 5.8%.