RBI raises repo rate by 25 bps, revises inflation and growth forecast
Excluding today’s hike, the central bank has raised repo rate by 225 bps since April 2022 in a bid to tame inflation, which has stayed above its comfort zone of 2-6 percent.
Published: 08th February 2023 10:21 AM | Last Updated: 08th February 2023 11:46 AM | A+A A-
MUMBAI: As widely expected, the Reserve Bank of India (RBI) hiked repo rate, the rate at which the central bank lends to banks, by 25 basis points (bps) to 6.5 percent. The central bank has revised down the inflation projection to 6.5 percent for 2022-23 against previous forecast of 6.7 percent and expects GDP growth for 2023-24 to be 6.4% while growth for 2022-23 has been pegged at 7 perecent.
“Based on an assessment of the macroeconomic situation and its outlook, the MPC decided by a majority of 4 members out of 6 to increase the policy repo rate by 25 basis points to 6.50 percent, with immediate effect. Consequently, the standing deposit facility (SDF) rate will stand revised to 6.25 percent; and the marginal standing facility (MSF) rate and the Bank Rate to 6.75 percent,” said RBI Governor Shaktikanta Das while announcing the decision of MPC on Wednesday.
The MPC decided by a majority of 4 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
The central bank has revised down its forecast for inflation. It expects CPI inflation to be inflation is projected at 6.5 percent in 2022-23 against previous forecast of 6.7 percent. It is further expected to fall to 5.3 percent in next financial year.
“On the assumption of a normal monsoon, CPI inflation is projected at 5.3 percent for 2023-24, with Q1 at 5.0 percent, Q2 at 5.4 percent, Q3 at 5.4 percent and Q4 at 5.6 percent, and risks evenly balanced,” said the Governor.
Excluding today’s hike, the central bank has raised repo rate by 225 bps since April 2022 in a bid to tame inflation, which has stayed above its comfort zone of 2-6 percent. Headline CPI inflation has moderated by 105 basis points during November-December 2022 from its level of 6.8 percent in October 2022.
As per the RBI, real GDP growth for 2023-24 is projected at 6.4 percent with Q1 at 7.8 percent, Q2 at 6.2 percent, Q3 at 6 percent and Q4 at 5.8 percent.
“Real GDP growth is estimated at 7 percent in 2022-23, according to the first advance estimate of the National Statistical Office (NSO). Higher rabi acreage, sustained urban demand, improving rural demand, robust credit expansion, gains in consumer and business optimism and the government’s enhanced thrust on capital expenditure and infrastructure in the Union Budget 2023-24 should support economic activity in the coming year,” said Das.
The Governor said that broad-based credit growth, improving capacity utilisation, government’s thrust on capital spending and infrastructure should bolster investment activity. According to RBI surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook. “Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.4 percent with Q1 at 7.8 percent; Q2 at 6.2 percent; Q3 at 6.0 percent; and Q4 at 5.8 percent. The risks are evenly balanced,” added the Governor.