The Reserve Bank of India (RBI) has taken a major step in controlling inflation and supporting growth in the economy by increasing the policy repo rate by 25 basis points to 6.50%. The Monetary Policy Committee (MPC) of RBI took this decision. A majority of 4 out of 6 members voted in favor to make this decision. Revised the standing deposit facility (SDF) rate to 6.25%. While the marginal standing facility (MSF) rate and the Bank Rate are now 6.75%.
Focus of Monetary Policy Committee (MPC) on Inflation and Growth
In his monetary policy statement, RBI Governor Shaktikanta Das stated that the MPC believed that “further calibrated monetary policy action is warranted to keep inflation expectations anchored, break the persistence of core inflation and thereby strengthen the medium-term growth prospects.” The focus of the MPC is on withdrawing accommodation in order to both maintain inflation within the target and support growth.
GDP and Inflation Projections for 2023-24
The governor projects the real GDP growth for 2023-24 to be 6.4%, with a projection of 7.8% for the first quarter (Q1), 6.2% for Q2, 6.0% for Q3, and 5.8% for Q4. Additionally, he notes that the risks are evenly balanced. The assessment balances the risks evenly.
The Rate Hike: Appropriate at Current Juncture
Assuming an average crude oil price of US$95 per barrel. Projections estimate that inflation will reach 6.5% in 2022-23, with a decline to 5.7% in the fourth quarter. Assuming a normal monsoon, projections for Consumer Price Index (CPI) inflation for 2023-24 stand at 5.3%, with Q1 projected at 5.0%, Q2 at 5.4%, Q3 at 5.4%, and Q4 at 5.6%. The evenly balanced risks have arisen once again.
Monetary Policy to Remain Agile and Alert
The governor deemed the 25 basis point rate hike to be appropriate at the current juncture. It provides the opportunity to evaluate the impact of previous actions on inflation and the economy. Also, to weigh incoming data and forecasts to determine future policy stance. He added that monetary policy will remain agile and alert to tackle any challenges that arise in the inflation trajectory.
The RBI’s latest move, with the Monetary Policy Committee (MPC) increasing the policy repo rate and focusing on withdrawal of accommodation, marks a significant step forward in maintaining inflation within the target range while supporting economic growth. Furthermore, the MPC will continuously keep a vigilant eye on the changing inflation outlook and take prompt action to tackle any emerging challenges. In this way, the RBI’s proactive stance will ultimately lead to a stable inflationary environment and sustained growth.
Also read: Five things to watch out for in RBI ‘s monetary policy announcement
