Home / News / India /  RBI retains GDP growth forecast; repo rate now above pre-Covid levels
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The monetary policy committee of Reserve Bank of India (RBI) today decided to increase repo rate, the main lending rates to banks, by 50 basis points to 5.4% with immediate effect. The central bank also retained its GDP growth outlook for this fiscal. To curb inflationary pressures, the Reserve Bank of India has so far raised the repo rate by 140 basis points since embarking on a tightening cycle at an unscheduled policy meeting in May this year.  The repo rate before the pandemic came was 5.15%. 

RBI retained GDP growth forecast at 7.2%. Though the Indian economy has been impacted by global economic situation, RBI Governor Shaktikanta Das said, the economic recovery in India is showing signs of broadening.

After the repo rate hike, the Standing Deposit Facility rate and the Marginal Standing Facility Rate were accordingly adjusted higher by the same quantum to 5.15% and 5.65%, respectively.

Analysts had expected the central bank to increase its key interest rate from anywhere between 25 basis points and 50 basis points. 

The retail inflation in India has remained above 7% for the last three months but has eased from eight-year high of 7.79%, hit in April.

The RBI retained inflation projection at 6.7% for 2022-23, with Q2 at 7.1% Q3 at 6.4%; and Q4 at 5.8%. 

Bond yields in India rose after the RBI rate hike announcement. The benchmark 10-year bond yield climbed to  7.23%, from 7.1073% earlier today.  However, equity markets held on to the early gains, with Sensex up over 200 points.

“Today’s RBI MPC decision to hike the repo rate by 50 bps is in line with the market expectations, thus remaining a non-event. This move and the change in stance from neutral to the withdrawal of accommodation were imperative to ease down the current scorching inflation. Inflation is expected to remain above the central bank's 6% threshold in the second & third quarters of this fiscal year, whereas for the whole year CPI inflation is projected at 6.7%. The recent commentary by the governor has corroborated the statement that India has zero probability of slipping into recession. Nevertheless, the commentary was cautious about the global and geo-political issues that could severely impact the supply chains," said Santosh Meena, Head of Research, Swastika Investmart Ltd.




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