India Hikes Policy Rate By 25 Basis Points

The Reserve Bank of India (RBI) said the Monetary Policy Committee (MPC) voted to increase the policy repo rate by 25 basis points to 6.50% with immediate effect.

Consequently, the standing deposit facility (SDF) rate will stand revised to 6.25%, while the marginal standing facility (MSF) rate and the bank rate to 6.75%, RBI Governor Shaktikanta Das said in a statement today.

Following are the key highlights from the statement:

• Tighter financial conditions caused by aggressive monetary policy actions, volatile financial markets, debt distress, protracted geopolitical hostilities and fragmentation continue to impart high uncertainty to the outlook for the global economy.

• Consumer price inflation in India moved below the upper tolerance level during November-December 2022, driven by a strong decline in prices of vegetables. Core inflation, however, remains sticky.

• MPC was of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored, break the persistence of core inflation and thereby strengthen the medium-term growth prospects.

• Inflation is expected to moderate in 2023-24, but it is likely to rule above the 4% target. The RBI is mandated to keep the consumer price index (CPI) inflation at 4%, with a 2% tolerance band on either side.

• MPC will continue to maintain strong vigil on the evolving inflation outlook so as to ensure that it remains within the tolerance band and progressively aligns with the target.

• Real gross domestic product (GDP) growth for FY24 is projected at 6.4%.

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