RBI hikes repo rate by 50bps, GDP pegged at 7.2%
The Reserve Bank of India (RBI) has decided to hike the repo rate by 50 basis points (bps) to 5.40% on Friday, Governor Shaktikanta Das announced. This comes as the third hike by the central bank this fiscal year, and highest since pre-COVID-19 times. The RBI also announced that real GDP growth for FY 2023 has been retained at 7.2%, with Q1 at 16.2%.
Suggesting that India's economy has been grappling with high inflation, Das added that the "country's financial sector remains well capitalized and the country's forex reserves provide insurance against global spillovers." Consumer Price Index (CPI) inflation stood at 7.01% in June, the Governor informed. Inflation projection for FY 2023 was retained at 6.7% "on the assumption of normal monsoon and crude oil at $105/barrel."
RBI's monetary policy committee (MPC) unanimously voted to increase the policy repo rate by 50 bps to 5.4% with immediate effect. Repo rate is essentially the interest charged by RBI when commercial banks sell their securities to the central bank to borrow from them. Das said that domestic economic activity was resilient and progressing broadly against adverse global conditions, hinting at the Russia-Ukraine crisis.
Commenting on inflation, the governor said, "Volatility in global financial markets is impinging upon domestic financial markets, including the currency market, thereby leading to imported inflation." The MPC concluded that calibrated withdrawal of monetary accommodation is warranted to keep inflation expectations anchored, The Hindu reported.
The governor announced that the RBI has retained real GDP growth projection for FY23 at 7.2%. For Q1 it is 16.2%, for Q2 it is 6.2%, for Q3 it is 4.1%, and for Q4 it is 4.0%, and real GDP growth for Q1 2023-24 is at 6.7%, Das said. Speaking on the Rupee, the governor said that it has appreciated 4.7% till August 4th.
Decline in rupee is more due to appreciation of USD than on account of weakness in Indian economy: Das— Press Trust of India (@PTI_News) August 5, 2022
With June 2022 being the sixth consecutive month where CPI inflation was at or above the upper tolerance level of 6%, Das said that inflation is projected at 6.7% in FY23. As per the governor, the projection for (2022-23) Q2 is 7.1%, Q3 is 6.4%, and Q4 is 5.8%. For 2023-24, CPI inflation is projected at 5.0%.