RBI Governor Shaktikanta Das announces hike in repo rate by 35 bps

RBI governor Shaktikanta Das emphasizes concerns on core inflation, says overall price momentum high

December 7, 2022

RBI hikes repo rate by 35 bps to 6.25%, cuts FY23 GDP forecast to 6.8%

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Wednesday increased the repo rate by 35 basis points (bps) to 6.25 percent to contain inflation, while maintaining its stance of focusing on the “withdrawal of accommodation”. RBI Governor Shaktikanta Das, heading the MPC, announced the rate hike.

The 35-bps hike in repo rate by the central bank was in line with what economists had predicted. The repo rate hike decision was taken by a majority of 5 out of the 6 members of the Monetary Policy Committee.

The repo rate, also called the policy rate, is the interest at which RBI lends money to commercial banks.

Governor Shaktikanta Das said in a media address, “The MPC felt that a further calibrated approach to monetary policy action is essential in order to keep inflation expectations anchored, break the core inflation persistence, and contain second-round effects.”

Das added, “With today’s move, the central bank has cumulatively hiked interest rates by 225 bps points. Although commodity, energy, and food prices have eased, inflation remains high and broad-based world over.”

Das said the Indian economy was resilient and the inflation was moderate. While the battle against inflation will continue, Das also said the aspect of economic growth will also be kept in mind. The GDP growth of 6.8 percent was resilient when the world was experiencing an acute slowdown.

Soon after the repo rate hike, Banking stocks picked up momentum. PSU bank stocks were big winners, while notable gains were also seen in private bankers.

Reacting to the rate hike K Joseph Thomas, Head Research, Emkay Wealth said, “The 35 bps hike in repo rate takes the base rate to 6.2 5 percent. This will push the short-term rates higher. In line with expectations but the overall stance looks relatively moderate compared to earlier policy pronouncements given the inflation outlook better.”

The persistence of inflation due to higher oil prices still remains a risk. Also, the weak Rupee may transmit some inflation into the domestic economy, he said. He said the 10-year benchmark yield may be in a broad range of 7.25 – 7.45 percent, Thomas added.

“No real surprise with 35 bps indicating that the fight against inflation is not yet over but there is the hope of a downward trajectory. Therefore not 25 or 50 bps. Growth projections lower at 6.8 percent and while the magnitude is marginal indicates still resilience on balance,” Madan Sabnavis, Chief Economist, Bank of Baroda said.

“These are relevant observations given that the World Bank has scaled up projections just yesterday. Stance continues to be withdrawn which is relevant here as we are still in surplus though lower than three months back,” he added.

“There is assurance that RBI will provide liquidity when required as it tracks standing deposit facility (SDF) and variable rate reverse repo (VRRR) balances. On the whole, it is good for markets – Sensex is up with the announcement. GSec yields up marginally mirroring the rate hike,” Sabnavis remarked.

[With Inputs from IANS]

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