RBI hikes repo rate by 50 basis points on Wednesday
The Reserve Bank of India raised its key repo rate by 50 basis points on Wednesday, taking the rate to 4.9 per cent, and raised its inflation projection for the current fiscal to 6.7 per cent, well above its upper-end of its target range of 2-6 per cent.
Late last month, after the off-cycle interest rate increase, Governor Shaktikanta Das said that another rate hike move at the June policy meeting was a “no-brainer”.
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 of 5.50 per cent.
Retail inflation surged to an eight-year high of 7.79 per cent in April. It has been above 6 per cent since January 2022.
Indeed, 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.
“Inflation likely to remain above 6 per cent in first three quarters of current fiscal,” said RBI Governor Shaktikanta Das. “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.
Mr Das had said a June 8 move was a “no brainer”. But analysts polled by Reuters had been divided over how much it would hike, with forecasts ranging between 25 and 75 bps.
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.