New Delhi| June, 8 : The Reserve Bank of India raised its key interest rate by 50 basis points on Wednesday, taking the repo rate to 4.9 per cent, and raised its inflation projection for the current fiscal to 6.7 per cent, well above the upper-end of its target range of 2-6 per cent.
All the six members of the Monetary Policy Committee (MPC), headed by the RBI Governor, unanimously voted for the latest rate hike, taking the repo rate to 4.9 per cent. If broader market predictions are anything to go by, then the central bank is expected to hike rates again at its August meeting, taking the repo rate to above the pre-pandemic level.
Consumer Price Index (CPI) based inflation, which RBI factors in while arriving at its monetary policy, galloped for the seventh straight month to touch an 8-year high of 7.79 per cent in April. Retail inflation has remained above the RBI’s 2-6 per cent target band since the beginning of this year. The central bank raised its inflation projection for the current fiscal year to 6.7 per cent, from 5.7 per cent predicted in April. “Upside risk to inflation persists; a recent spike in tomato, crude prices fuelling inflation, said RBI Governor Shaktikanta Das. “Inflation likely to remain above 6 per cent in first three quarters of current fiscal,” said the RBI Governor. “Our steps will be calibrated, focussed on bringing down inflation to target level,” he added.
On growth, the RBI expected the Indian economy to expand at 7.2 per cent this fiscal, same as previously forecast. Previously, reflecting growing uncertainties, the RBI had raised its retail inflation forecast for the current fiscal year FY23 to 5.7 per cent, 120 basis points (4.5 per cent) above its forecast in February, and cut its economic growth forecast to 7.2 per cent for 2022-23 from 7.8 per cent earlier. The Standing Deposit Facility rate and the Marginal Standing Facility Rate were accordingly adjusted higher by the same quantum to 4.65 per cent and 5.15 per cent, respectively. Analysts also expect the RBI to reduce liquidity, reinforcing its fight against inflation and extending its effort to return monetary conditions to what they were like before the COVID-19 pandemic prompted radical action to stimulate the economy. RBI Governor announced steps to increase penetration of digital payment system, proposes to link credit cards to UPI platforms.
