The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) based on an assessment of the macroeconomic situation and its outlook, decided by a majority of 4 members out of 6 to increase the policy repo rate by 25 basis points to 6.50%, with immediate effect.
Consequently, the standing deposit facility (SDF) rate will stand revised to 6.25%; and the marginal standing facility (MSF) rate and the Bank Rate to 6.75%.
The MPC also decided by a majority of 4 out of 6 members to remain focussed on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
In his monetary policy statement, RBI governor Shaktikanta Das on February 8 said, the MPC was 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%.”
“The MPC will continue to maintain strong vigil on the evolving inflation outlook so as to ensure that it remains within the tolerance band,” he added.
Taking various factors into consideration, 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 evenly balanced,” Mr. Das said.
Taking into account several factors and assuming an average crude oil price (Indian basket) of US$ 95 per barrel, Mr. Das said inflation is projected at 6.5% in 2022-23, with Q4 at 5.7%.
On the assumption of a normal monsoon, 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 evenly balanced,” he said.
Stating that a rate hike of 25 basis points was considered as appropriate at the current juncture, he said, “The reduction in the size of the rate hike provides the opportunity to evaluate the effects of the actions taken so far on the inflation outlook and on the economy at large.” “It also provides elbow room to weigh all incoming data and forecasts to determine appropriate actions and policy stance, going forward,” he said.
“Monetary policy will continue to be agile and alert to the moving parts in the inflation trajectory to effectively address the challenges to the economy,” Mr. Das added.
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