Repo rate hiked by 25 bps, FY23 GDP growth estimate raised

On Wednesday, February 8, 2023, Reserve Bank of India (RBI) Governor Shaktikanta Das released the Monetary Policy statement, which included the highly anticipated increase in the repo rate of 25 basis points. The central bank had increased the important benchmark interest rate by 35 basis points in its December monetary policy review (bps). In order to keep inflation under control, the Reserve Bank has raised the short-term lending rate by 250 basis points, including the rate in effect today.

In delivering the results of the monetary policy on Wednesday, Reserve Bank of India governor Shaktikanta Das predicted that average retail inflation in India will be 5.3 over the upcoming fiscal year 2023–2024.

According to him, the estimate is predicated on the notion of a typical monsoon. It is anticipated that the average inflation in Q1 2023–24 will be 5%, Q2 will be 5.4, Q3 will be 5.4, and Q4 will be 5.6 percent, respectively.

According to him, the expected inflation rate for the current fiscal year 2022–2023 is 6.5%, with a quarterly average of 5.7%.

As the policy likely defied expectations of a dovish turn, bonds declined, with the yield on benchmark 10-year notes jumping by as far as four basis points to 7.36%, while the currency was trading higher.

“The MPC will continue to maintain strong vigil on the evolving inflation outlook so as to ensure that it remains within the tolerance band and progressively aligns with the target,” Das added.

Looking ahead, while inflation is expected to moderate in 2023-24, it is likely to rule above the 4 per cent target.

“The outlook is clouded by continuing uncertainties from geopolitical tensions, global financial market volatility, rising non-oil commodity prices and volatile crude oil prices. At the same time, economic activity in India is expected to hold up well. The rate hikes since May 2022 are still working their way through the system.”

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