By A Special Correspondent
First publised on 2023-02-08 07:33:14
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) hiked the repo rate by 25 basis points in a 4:2 decision. It retained its stance of withdrawing accommodation. The standing deposit facility rate will stand revised to 6.25% and the marginal standing facility rate and the bank rate to 6.75%.RBI governor Shaktikanta Das said that hiking of rate was necessary at this juncture as inflation is still high. RBI projected GDP growth at 6.4% in the current fiscal. Das also said that the outlook for the global economy does not look as grim as even some months back.
With inflation below the upper threshold of the RBI band for two consecutive months and with dissent within the MPC, it was being expected that the committee will pause rate hikes for now. But as Das said, although food inflation has gone down, core inflation still remains sticky. Since the MPC was criticized for not being ahead of the inflation curve initially and starting the rate hikes very late, it has chosen to play safe by hiking the rate by 25 basis points in the last review meet of FY 23.
The RBI has hiked the repo rate by a cumulative 250 basis points from 4% in May 2022 to 6.5% now. This was in keeping with the trend worldwide as central banks geared up to fight runaway inflation due to supply chain disruptions due to Covid and the war in Ukraine. But with inflation easing globally, all central banks have indicated that they will go slow in hiking rates. Consequently, the RBI has also slowed down - from 50 basis points in the early stages to 35 basis points in December 2022 to 25 basis points now. But given the fact that the budget has allocated massive funds for infrastructure development and the government expects private investment to follow, any more rate hikes will dampen the enthusiasm. Hence, if inflation remains under control, the RBI should now pause the rate hikes.