The monetary Policy Committee of Reserve Bank of India today decided to increase Repo Rate by a half percent to 5.9 percent, with immediate effect. The RBI has raised the repo rate by 1.9 percent since May. Governor Shaktikanta Das said, the MPC decided by a majority of five members out of six to increase the policy repo rate. Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.65 percent; the marginal standing facility (MSF) rate, and the Bank Rate to 6.15 percent. The MPC also decided by a majority of 5 out of 6 members to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.
Today, RBI has projected real GDP growth for 2022-23 at 7.0 percent. Earlier RBI projected GDP growth for 2022-23 at 7.2 percent. During the current financial year, US Dollar has appreciated by 14.5 percent against major currencies. This Governor said, This has caused turmoil in currency markets globally. The movement of the Indian Rupee (INR) has, however, been orderly compared to most other countries. It has depreciated by 7.4 percent against the US dollar during the same period – faring much better than several reserve currencies as well as many of its Emerging Market Economies and Asian peers. He said, A stable exchange rate is a beacon of financial and overall macroeconomic stability and market confidence. The rupee is a freely floating currency and its exchange rate is market-determined. He reiterated that the RBI does not have any fixed exchange rate in mind. It intervenes in the market to curb excessive volatility and anchor expectations. The overarching focus is on maintaining macroeconomic stability and market confidence.
Explaining the rationale behind the rate hike Governor said, The global economic outlook continues to be bleak. Financial conditions are tightening and recession fears are mounting. Inflation continues to persist at alarmingly high levels across jurisdictions. The enduring effects of the pandemic and the geo-political conflict are manifesting in demand-supply mismatches of goods and services. Against this challenging global environment he said, economic activity in India remains stable. While real GDP growth in Q1 of 2022-23 turned out to be lower than our expectations, the late recovery in Kharif sowing, the comfortable reservoir levels, improvement in capacity utilization, buoyant bank credit expansion, and government’s continued thrust on capital expenditure are expected to support aggregate demand and output in the second half of FY 2022-23.
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