The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has unanimously decided to hike the repo rate by 50 basis points (bps) to 4.9 percent as inflation is likely to be above 6 percent till December 2022 given global growth risks and geopolitical tensions. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target range, while supporting growth.
After the repo rate hike, the standing deposit facility (SDF) rate stands adjusted to 4.65 percent and the marginal standing facility (MSF) rate and the bank rate to 5.15 percent, but the MPC has decided to keep cash reserve ratio (CRR) unchanged at 4.5 percent.
“The supply-side measures taken by the government would help to alleviate some cost-push pressures. At the same time, however, the MPC notes that continuing shocks to food inflation could sustain pressures on headline inflation. Persisting inflationary pressures could set in motion second-round effects on headline CPI (Consumer Price Index). Hence, there is a need for calibrated monetary policy action to keep inflation expectations anchored and restrain the broadening of price pressures,” the RBI said in its note.
The central bank raised its full year FY23 inflation forecast to 6.7 percent, from 5.7 percent earlier, as the tense global geopolitical situation and the consequent elevated commodity prices impart considerable uncertainty to the domestic inflation outlook. While considering the inflation forecast, the RBI hopes for a normal monsoon in 2022 and an average crude oil price (Indian basket) of $105 per barrel.