RBI increases repo rate by 35 basis points to 6.25%, pegs GDP growth at 6.8%

The Reserve Bank of India on Wednesday increased the repo rate by 35 basis points to 6.25%.

The repo rate is the interest rate at which the central bank lends money to commercial banks.

At a press conference, RBI Governor Shaktikanta Das made the announcement after the central bank’s bi-monthly monetary policy meeting.

This is the fifth hike in the repo rate since May. The central bank had raised the repo rate by 50 basis points to 5.9% in September.

The monetary policy committee, which has three members from the Reserve Bank of India and three external members, raised the key lending rate on Wednesday with a five out of six majority.

GDP projection lowered to 6.8%

The central bank also lowered India’s Gross Domestic Product projection to 6.8% for 2022-’23 from its earlier estimate of 7%, reported The Hindu.

“India will still be among the fastest-growing major economies in the world and that is something that I think needs to be kept in mind,” Das added.

He projected the growth in third quarter to be as low as 4.4%.

Several rating agencies and economic bodies have predicted that India’s economy will slow down as compared to the full-year growth of 6.9% recorded in the previous financial year of 2021-’22.

The second quarter GDP numbers released on November 30 had shown that India’s growth rate slowed down from 8.4% recorded in the second quarter ((July-September)) last year. In the first quarter that ran from April to June, the economy had grown by 13.5%.

RBI retains inflation at 6.7%

At Wednesday’s press conference, Das cited a relatively higher price rise to increase the key lending rate.

The price rise indicator had dropped to a three-month low of 6.77% in October. It was 7.41% in September, 7% in August and 6.71% in July.

However, retail inflation has remained above the upper limit mandated by the Reserve Bank of India for 10 months. The central bank aims to keep inflation between 2% and 6%.

The central bank on Wednesday also retained its inflation forecast at 6.7%.

“Inflation is expected to moderate but the battle against inflation is not over,” Das said, reported PTI. “Pressure points from high and sticky core inflation and exposure of food inflation to international factors and weather related events do remains.”

The RBI projected inflation for October-December quarter at 6.6%, January-March quarter at 5.9%, April-June quarter at 5% and July-September quarter at 5.4%.

Das added that inflation was expected to be above 4% in the next 12 months.