Amid rising concerns over surging inflation, geopolitical headwinds and a record depreciation of the rupee, the Reserve Bank of India on Friday hiked the repo rate by 50 basis points. The repo rate – the interest rate at which RBI lends to commercial banks – now stands at 5.9%.
Announcing the outcome of the three-day deliberations at the central bank’s Monetary Policy Committee (MPC) on Friday, RBI Governor Shaktikanta Das said that the decision to hike the repo rate has been taken based on an assessment of the global macroeconomic situation and outlook.
The Standing Deposit Facility (SDF) stands adjusted to 5.65% and the Marginal Standing Facility (MSF) and the Bank Rate to 6.15%. The MPC also decided by a majority of 5 out of 6 members to remain focused on the withdrawal of accommodation to contain inflation while supporting growth.
The RBI revised downwards India’s GDP forecast for the financial year 2022-23 to 7%, from 7.2% earlier.
The inflation projection for FY23 remains unchanged at 6.7% owing mainly to upside risks to food prices.
“The global economic outlook continues to be bleak. Recession fears are mounting. Inflation continues to persist at alarmingly high levels. The enduring effects of the pandemic and the geopolitical conflicts are manifesting in demand-supply mismatches of goods and services. The US dollar has strengthened rapidly to a two-decade high,” the Governor said.
“However, against this challenging global environment, economic activity in India remains stable. That is a refreshing point. It gives us confidence in dealing with the current challenge which we are confronted with,” he added.