Reserve Bank of India raises repo rate by 25 basis points to 6.5%

The Reserve Bank of India's key repo rate was raised by 25 basis points (bps) on Wednesday as widely expected, the sixth straight increase, as core inflation remained high despite signs retail inflation has peaked.

The central bank said that its policy stance remains focused on withdrawal of accomodation. The monetary policy committee (MPC), comprising three members from the central bank and three external members, raised the key lending rate or the repo rate to 6.50% in a split decision.

Four of the six members voted in favour of the decision.

This is the sixth time interest rate has been hiked by the Reserve Bank of India (RBI) since May last year, taking the total quantum of hike to 250 basis points. Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) by a majority decided to raise the policy repo rate by 25 basis points and keep a 'strong vigil' on inflation outlook.

"Policy rate at 6.5 per cent still trails the pre-pandemic level," Das said, adding that core inflation will remain sticky.

RBI Monetary Policy Live Updates: Repo rate hiked by 25 bps, FY23 GDP growth estimate raised

Core inflation generally refers to inflation in manufactured goods.

The governor said the inflation will moderate in the next fiscal but remain above the 4 per cent level. The RBI is mandated to keep inflation at 4 per cent with a margin of 2 per cent on either side.

For the next fiscal, the RBI projected a growth rate of 6.4 per cent. In the latest Economic Survey of the finance ministry, growth projection was 6-6.8 per cent for 2023-24.

According to Das, the retail inflation will average 6.5 per cent in the current fiscal and moderate to 5.3 per cent in 2023-24.

Indian economy has remained resilient demand global headwinds, Das said.