rbi rate hike: RBI hikes repo rate by 50 bps to 4.90%; focused on withdrawing accommodation

Reacting to the announcement, BSE Sensex tumbled over 400 points and NSE Nifty slipped below 16,350. However, markets soon pared the sudden losses with the benchmarks trading 0.4 per cent lower.

Yield on the 10-year benchmark government bond was flat at 7.52 per cent.

The Standing Deposit Facility, which represents the lower band of the interest rate corridor has been raised to 4.65 per cent from 4.15 per cent earlier.

The MPC remains committed to bringing down Consumer Price Inflation back to target and has unanimously voted to focus on withdrawal of accommodation, Das said.

The MPC’s rate action was in line with market expectations. An ET poll of 23 respondents had predicted a 25-50 bps rate hike with almost half of those polled expecting a hike of 50 bps.

Das said that with inflationary pressures becoming broad-based, it was likely that the CPI inflation would remain above the RBI’s 2-6 per cent band for the first three quarters of the current financial year.

Further monetary policy measures are needed to anchor inflation expectations, he stated.

The RBI Governor said, however, that recent steps taken by the government such as cuts in fuel excise duty cuts have led to a significant decline in household inflation expectations.

With global crude oil having surged following Russia’s invasion of Ukraine in late February, upside risks to India’s inflation have increased significantly, given that the country imports more than 80 per cent of its fuel needs.

CPI inflation had surged to an eight-year high of 7.79 per cent in April, well above the MPC’s mandated range of 2-6 per cent. The medium-term target for the price gauge is 4 per cent.


INFLATION, GDP PROJECTIONS

As expected by markets, the RBI sharply increased inflation projections, with CPI inflation for the current financial year now seen at 6.7 per cent.

CPI inflation is seen at 7.5 per cent in April-June, 7.4 per cent in Jul-Sep, 6.2 per cent in October-December and 5.8 per cent in January-March, Das said.

In the April policy, the MPC had projected headline retail inflation at 5.7 per cent in the current financial year, with that for Apr-Jun seen at 6.3 per cent, Jul-Sep at 5.8 per cent, Oct-Dec at 5.4 per cent and Jan-Mar at 5.1 per cent.

The RBI Governor said that the GDP growth projection for the current financial year had been retained at 7.2 per cent.

In April, the MPC had projected real GDP growth for 2022-23 (April-March) at 7.2 per cent, with that for the first quarter seen at 16.2 per cent, the second quarter at 6.2 per cent, the third quarter at 4.1 per cent and the fourth quarter at 4 per cent.