RBI Monetary Policy : RBI hikes Repo rate by 25 bps to 6.5%



New Delhi, February 08, 2023.

The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, on Wednesday announced a 25 basis point (bps) hike in repo rate to 6.5 per cent. Maintaining an accommodative stance, the central bank maintained its commitment to fight inflation.

In his speech, Das said the MPC decided 4:2 vote to remain focused on withdrawal of accommodative policy. “The global economic outlook doesn’t look as grim now as it did a few months ago, growth prospects in major economies have improved while inflation is on a descent though inflation still remains on well-above target in major economies,” he said, while adding “Rate hike of 25 bps is considered appropriate at this juncture, monetary policy to remain agile, alert to inflation.”

He said that the RBI MPC projected India’s GDP growth at 6.4 per cent for 2023-2024.

Ms. Shanti Ekambaram, Whole-time Director, Kotak Mahindra Bank on RBI Monetary Policy : “On the back of a resilient economy and moderating inflation, the MPC increased the repo rate by 25 bps even as market participants had divergent expectations. The Indian economy remained resilient and grew on account of continued urban consumption, improving rural consumption, strong services growth, continued capacity utilisation in manufacturing, and a good Rabi sowing season. This is despite external headwinds due to continued geopolitical tensions and weaker external sector.

The MPC remained committed to targeting inflation while continuing with a stance of withdrawal of accommodation. RBI has committed to ensure liquidity to support estimated growth.  The MPC expects growth at 6.4% in FY23-24, higher than the average market expectations and inflation at 5.3%. Thus, a nominal GDP of 11.7%. This should make India one of the resilient economies next year as well. Surprisingly inflation projection is higher than the targeted benchmark every quarter of next fiscal.

The MPC estimates for Q4 FY24 growth stands at 5.8% and inflation at 5.6%. While it is largely expected that we are at the top of the rate increase cycle, the MPC is likely to monitor data both of external and domestic growth as well as inflation to determine further action. While it is likely that there could be a pause in the next policy, it is not clear at this stage that we are fully done with rate increases. Based on these estimates it certainly rules out any rate reduction in the last quarter of next fiscal unless data print comes out otherwise.”