The Reserve Bank of India (RBI) has taken the decision to hike the repo rate by 25 basis points, bringing it up to 6.5%. This move has generated a lot of discussion in the business community, with some experts hailing it as a positive step for the economy, while others have expressed concerns about its potential impact.
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RBI Increases Policy Repo Rate to Strengthen Medium-Term Growth Prospects -
The Reserve Bank of India's Monetary Policy Committee (MPC) has decided to increase the policy repo rate by 25 basis points to 6.50% in response to the current Situation in Economy . The Monetary Policy Committee (MPC) has four out of six members who are committed to reducing inflation and promoting growth.
In his monetary policy statement, RBI governor Shaktikanta Das stated that the MPC is of the view that “further calibrated monetary policy action is warranted to keep inflation expectations anchored, break the persistence of core inflation and thereby strengthen the medium-term growth prospects. Accordingly, the MPC decided to raise the policy repo rate by 25 basis points to 6.50%.
Real GDP Growth Projections for 2023-24 -
According to the monetary policy statement, real GDP growth for 2023-24 is projected at 6.4%, with Q1 at 7.8%, Q2 at 6.2%, Q3 at 6.0% and Q4 at 5.8%. The risks are considered to be evenly balanced.
Inflation Projections for 2022-23 and 2023-24 -
Assuming an average crude oil price of $95 per barrel and taking into account various other factors, inflation is projected at 6.5% in 2022-23, with Q4 at 5.7%. If there is a normal monsoon, then the Consumer Price Index (CPI) inflation is projected at 5.3% for 2023-24, with Q1 at 5.0%, Q2 at 5.4%, Q3 at 5.4% and Q4 at 5.6%. The risks are considered to be evenly balanced.
Rate Hike of 25 Basis Points and Monetary Policy Stance -
The 25 basis points rate hike is considered appropriate at the present time and provides the opportunity for the MPC to evaluate the impact of its actions on the inflation outlook and the economy as a whole. The reduction in the size of the rate hike will also provide time to assess incoming data and forecasts in determining future policy stance.
Monetary policy will remain alert to the movements in the inflation trajectory in order to effectively address challenges to the economy. The MPC will maintain a strong vigil on the evolving inflation outlook to ensure that it remains within the tolerance band, while supporting growth.
In conclusion, the increase in the policy repo rate by 25 basis points to 6.50% by the Reserve Bank of India's Monetary Policy Committee aims to strengthen medium-term growth prospects and reduce inflation expectations.
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