RBI Monetary Policy | Central Bank Raises Repo Rate By 50 Bps To 5.4%; GDP Growth Forecast Retained At 7.2%

RBI Governor Shaktikanta Das said Indian economy grappling with high inflation; Standing Deposit Facility stands adjusted to 5.15 per cent

The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) headed by Governor Shaktikanta Das on Friday announced to hike the policy rate by 50 basis points (bps) to 5.4 per cent to contain soaring inflation that has surged in the few months. This is be the third consecutive hike in the repo rate in the past three months. 

During the announcement, Das said the MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

Das said the India's GDP growth forecast retained at 7.2 per cent as the economy is still grappling with high inflation. The real GDP growth projection for 2022-23 is retained at 7.2 per cent with Q1- 16.2 per cent, Q2-  6.2 per cent, Q3 -4.1 per cent,  and Q4- 4 per cent with risks broadly balanced. The real GDP growth for Q1 FY23-24 is projected at 6.7 per cent, the governor said.

The governor in his speech said that the MPC will remain focused on calibrated withdrawal of accommodation to deal with inflation, while still focusing on growth. He said that policy stance is retained at 'withdrawal of accommodation'.

The standing deposit facility (SDF) rate stands adjusted to 5.15 per cent and the marginal standing facility (MSF) rate and the bank rate to 5.65 per cent.  The central bank has already announced to gradually withdraw its accommodative monetary policy stance.

He said consumer price index (CPI) inflation remains uncomfortably high and is expected to remain above 6 per cent, while adding that CPI inflation seen at 6.7 per cent in FY23 and 5 per cent in FY24.

The RBI governor pointed out that successive shocks to the global economy taking a toll on the Indian economy as well. The IMF has revised global growth projection downwards. He added that the globalisation of inflation is coinciding with de-globalisation of trade.

He said domestic economic activity remains resilient. "As on August 4, 2022, the southwest monsoon rainfall was 6 per cent above the long period average (LPA). Kharif sowing is picking up. High frequency indicators of activity in the industrial and services sectors are holding up. Urban demand is strengthening while rural demand is gradually catching up. Merchandise exports recorded a growth of 24.5 per cent during April-June 2022, with some moderation in July. Non-oil non-gold imports were robust, indicating strengthening domestic demand," Das said in his speech, while adding overall system liquidity continues in surplus, with average daily absorption under the LAF at Rs 3.8 lakh crore during June-July.

The RBI's rate-setting panel began its three-day deliberations on the next bi-monthly monetary policy on Wednesday, while there are expectations of at least a 35-basis-point hike in the interest rate to tame high inflation.

Both the RBI and the central government have been taking steps to contain inflation, which is ruling above the banking regulator's comfort zone of 6 per cent since January this year and stood at 7.01 per cent in June.