RBI MPC Outcome | Central Bank Raises Repo Rate By 50 Bps To 4.90 Per Cent, GDP Growth Retained At 7.2 Per Cent

Inflation projected at 6.7 per cent for FY23; CPI-based inflation galloped for the seventh straight month to touch an 8-year high of 7.79 per cent in April

The Consumer Price Index (CPI) based inflation, which RBI factors in while arriving at its monetary policy, is on the rise since October 2021.

Source : AFP

The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) headed by Governor Shaktikanta Das on Wednesday announced to hike the policy rate by 50 basis points (bps) to a two-year high of 4.9 per cent as it doubled down to contain surging inflation that has soared in the past couple of months.

In his announcement, Das said that the RBI has retained the GDP growth at 7.2 per cent, while inflation projected at 6.7 per cent for FY23.

Consumer Price Index (CPI)-based inflation, which the 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.

He said that upside risk to inflation persists, while a recent spike in tomato, crude prices fuelling inflation. 

The RBI governor said that overall situation remains challenging, committed to dealing with challenges emanating from overseas. He also mentioned that the RBI has permitted rural cooperative banks to extend finance to commercial real estate.

The MPC noted that with the assumption of a normal monsoon in 2022 and an average crude oil price (Indian basket) of $105 per barrel, inflation is now projected at 6.7 per cent in 2022-23.

"Overall system liquidity remains in large surplus, with the average daily absorption under the LAF moderating to Rs 5.5 lakh crore during May 4 – May 31 from Rs 7.4 lakh crore during April 8 – May 3, 2022 in consonance with the policy of gradual withdrawal of accommodation,” said RBI Governor Das.

The central bank' monetary policy committee has also raised housing loan limits for co-operative banks by 100 per cent, while it has raised limit of e-mandates to Rs 15,000 from Rs 5,000.

Pradeep Multani, president, PHD Chamber, has reacted after the MPC outcome. He said that hard lending from an accommodative policy stance is disappointing as it will have an impact on costs of doing business and production possibilities.

“Though RBI’s decision to raise the repo rate by 50 bps to 4.9 per cent is in synchrony with its efforts to tackle persistently heightened inflation, however it will impact India’s economic growth due to dampened demand scenario and discouraged consumer and business sentiments. Any increase in the interest rate increases the costs of doing business, which are already high vis-a-vis high raw material costs amid geo-political distress," he said.

The MPC meeting, which began on Monday, ended with the announcement of the MPC’s decisions regarding key interest rates, CRR, and policy amendments to be made by the RBI Governor Shaktikanta Das.

The post-policy press conference will be telecast at 12 pm on Wednesday.

On May 4, in its off-cycle monetary policy review the central bank hiked the policy repo rate by 40 basis points or 0.40 per cent to 4.4 per cent. This was the first increase in the policy repo rate in nearly two years. The repo rate is the interest rate at which the RBI lends short-term funds to banks.

Inflation has been above the RBI's 2-6 per cent target band since the beginning of this year.