RBI Policy: MPC hikes repo rate by 25 bps, cautious on inflation but focus back on growth

The Monetary Policy Committee (MPC) on February 8 raised the repo rate, or the rate at which the Reserve Bank of India (RBI) lends short-term funds to banks, by 25 basis points (bps), taking the key policy rate to 6.5 percent.

RBI Governor Shaktikanta Das announced the decision after a three-day meeting of the rate-setting panel.

The rate hike will likely mark the end of the current rate hike cycle, according to top economists. The central bank-led rate setting panel, while hiking the rate, reaffirmed its commitment to fight inflation but indicated that the nascent recovery in the economy needs policy support.

Since last May, the MPC has hiked the policy rates by 250 bps to fight a persistently high inflation. One bps is one hundredth of a percentage point. After staying above the 6 percent upper band for nearly a year, India's retail inflation started easing later last year, providing comfort to the monetary policymakers.

The CPI inflation eased to a one-year low of 5.72 percent in December from 5.88 percent a month back. This is the third month in a row that the CPI inflation has fallen. It is also the second straight month that it stayed below the 6 percent upper limit of the RBI’s inflation mandate.

MPC’s shift to growth is understandable. With fears of a global recession raging, in India too, there are escalating concerns on the growth front. India is expected to grow slower at 6.1 percent in 2023, compared with 6.8 percent in 2022, according to IMF.

During a recent exclusive interview to Network 18 Group, Finance Minister Nirmala Sitharaman said that with inflation falling on a sustainable basis, the pressure on the central bank and its rate-setting to hike the interest rates has now eased.