The Reserve Bank of India raised its key lending rate by more than 35 basis points to a modest 6.25 per cent, after three consecutive 50-bps (basis point) hikes, citing slowing inflation to manage price pressures that have consistently hit its made above the upper edge. target band.
The Monetary Policy Committee (MPC), which is made up of three members from the RBI and three external members, increased the key lending rate, also known as the repo rate, from 0.35 per cent to 6.25 per cent with five of the six majority.
The Standing Deposit Facility rate and the Marginal Standing Facility rate were also raised by similar amounts to 6.00 per cent and 6.50 per cent, respectively.
The RBI cited slower price pressures for the smaller rate hike after consumer-price-based inflation fell to a three-month low of 6.77 per cent in October from a year ago.
This is in line with broader market expectations for a softening of rate hikes, given that the central bank had stepped up its tightening policy, forecasting inflation to likely peak in September and a narrowing of the price growth trajectory to 6 per cent. Favorable for mitigating base effect from early next year.
“RBI’s decision to increase the repo rate by 35 bps to 6.25 per cent is as expected. The decision has been taken to contain inflation, which remains above 4 per cent. This is the fifth hike this year, which gives you Shows how stubborn. Inflation trends have been there. But the view is that inflation, while remaining high, is coming down, and rates are somewhere near their peak,” Adil Shetty, CEO, Bankbazaar.com he said.
But RBI governor Shaktikanta Das said inflation remains high and the fight against inflation will have to continue as risks remain. The majority view of the MPC is to withdraw the liberal stance.
“Globally, inflation remains high and broad-based following the Russia-Ukraine war. The retail inflation projection for FY23 remains intact at 6.7 per cent, and we will keep an eye on inflation dynamics,” the governor said. “
The statement comes amid expectations that the potential for price pressures has peaked and concerns about economic growth have re-emerged.
After an increase of 40 basis points in May and 50 basis points each in June, August and September, this is the fifth consecutive hike, taking the repo rate to the highest level since April 2019.
Since May, the RBI has raised the benchmark rate by a total of 2.25 per cent to bring down domestic retail inflation, which has consistently crossed the upper end of the central bank’s tolerance band of 2-6 per cent each month this year. Is.
While Wednesday’s rate hike is only a small one, it will still put more weight on an already stretched monthly household budget, which has to deal with higher borrowing costs and increases in the price of almost everything.
As seen in recent months, Indian banks will surely pass on the latest rate hike of RBI to customers immediately, which will make loans costlier and lead to higher Equated Monthly Installments (EMIs).
“All consumer loans have become costlier this year. Borrowers are under pressure from rising interest and rising EMIs. Deposit rates, which have not been able to keep pace with the repo rate hike, are still on the rise. As on December 2, 38 banks offers FD (Fixed Deposit) rates of 7.00 per cent or more on select tenors. Prepaying your home loan when funds are available can do wonders and reduce your ballooning loan tenure,” says Bankbazaar.com CEO Mr. Shetty said.
The relatively large rate hike has raised concerns that the fight against inflation could also risk stalling economic growth, a view that has prompted several top institutions to lower their India GDP growth forecasts for this year and next. Forced to do, which can force the central. Bank’s hand to stop the hike at some point.
The RBI cut its growth forecast for the current fiscal to 6.8 per cent from 7.0 per cent in September.
But Mr Das said the Indian economy remained resilient and was seen as a bright spot in a gloomy world.
The RBI Governor said, “Despite a modest decline in GDP growth to 6.8 per cent, India will continue to be the fastest growing major economy. In an interconnected world, we cannot remain completely insulated from global geopolitical tensions The risk remains.”