Monetary Policy Committee (MPC) of reserve Bank of India (RBI) has unanimously decided to increase the policy repo rate by 50 basis points to 5.4% with immediate effect.
Consequently, the Fixed Deposit Facility (SDF) rate has been adjusted to 5.15 per cent; and marginal standing facility (MSF) rate and bank rate of 5.65%.
Highlights of RBI’s 4th Monetary Policy Review for the Financial Year 2022-23
Prime short-term lending rate (repo) raised by 50 basis points (bps) to 5.4%
Overall hike in repo by 140 bps from May 2022 to check inflation
GDP growth forecast for 2022-23 remains at 7.2%
GDP growth forecast: Q1 at 16.2%; Q2 at 6.2%; Q3 at 4.1%; And Q4 at 4%. Q1: Real GDP growth estimated at 6.7% for 2023-24
The retail inflation forecast has also been retained at 6.7% for 2022-23. Inflation projection: Q2 at 7.1%; Q3 at 6.4%; and Q4 at 5.8%; Q1:2023-24 at 5%
India witnessed huge portfolio outflow of USD 13.3 billion in FY 2013 till August 3
More depreciation of the rupee due to appreciation of the US dollar rather than weakness in the macroeconomic fundamentals of the Indian economy.
The rupee has depreciated by 4.7 per cent against the US dollar in this financial year till August 4.
India’s forex reserves are the fourth largest globally
The next meeting of the rate-setting panel is scheduled for September 28-30, 2022
The MPC also decided to focus on the return of housing to ensure that inflation remains within target going forward, while supporting growth, RBI Governor Shaktikanta Das said in its monetary policy statement on Friday.
Elaborating on the MPC’s rationale for its decisions on the policy rate and stance, he said that against the current unfavorable global environment, the MPC noted that domestic economic activity was resilient and progressed broadly on the lines of the MPC’s June proposal. Was being
“Consumer price inflation has moderated from its surge in April, but remains uncomfortably high and above the upper limit of the target. Inflationary pressures are broad-based and core inflation remains elevated,” he said.
“Volatility in global financial markets is impacting domestic financial markets, including money markets, leading to increased imported inflation,” he said.
While Mr Das said inflation is expected to remain above the upper limit in the second and third quarters, the MPC stressed that sustained high inflation could destabilize inflation expectations and hurt growth in the medium term.
“Therefore, the MPC decided that further withdrawals of monetary accommodation are needed to sustain inflation expectations and contain the effects of the second round,” he said.
“Accordingly, the MPC decided to increase the policy repo rate by 50 basis points to 5.4%. The MPC also decided to focus on the return of housing to ensure that inflation remains within the target while supporting growth going forward,” he said.
Taking several factors into account, RBI has retained the real GDP growth forecast for 2022-23 at 7.2%, with Q1 at 16.2%; Q2 at 6.2%; Q3 at 4.1%; And Q4 at 4.0%, with broadly balanced risks. Q1:The real GDP growth for 2023-24 is estimated at 6.7%.
Stating that June 2022 was the sixth consecutive month when headline CPI inflation remained at or above the upper tolerance level of 6%, the governor said that in 2022, the normal monsoon and the average crude oil price (Indian basket) is US$105 per barrel. Inflation is projected at 6.7% in 2022-23, with Q2 at 7.1%; Q3 at 6.4%; And Q4 at 5.8%, risk evenly balanced. Q1:CPI inflation for 2023-24 is projected at 5.0%.