RBI retained the inflation projection at 6.7 percent for the current fiscal while slashing the real GDP growth estimate to 7 percent from the earlier forecast of 7.2 percent for FY’23.
India’s annual retail inflation rate accelerated to 7% in August, driven by a surge in food prices, and has stayed above the RBI’s mandated 2-6% target band for eight consecutive months
MUMBAI:
The Reserve Bank of India’s benchmark repo rate was raised by 50 basis points on Friday, the fourth straight increase in the current cycle, as policymakers extended their battle to tame sustained above-target retail inflation rate.
RBI retained the inflation projection at 6.7 percent for the current fiscal while slashing the real GDP growth estimate to 7 percent from the earlier forecast of 7.2 percent for FY’23.
The monetary policy committee (MPC), comprising of three members from the RBI and three external members, raised the key lending rate or the repo rate to 5.90% with a five out of six majority.
RBI Governor and MPC chair Shaktikanta Das said in his address that the move to increase the rates was in tandem with the global cues and done to contain the headline inflation in the country.
After two shocks of coronavirus pandemic and the conflict in Ukraine, now we are in the midst of another shock, a storm, arising from aggressive monetary policies by the global central banks, Das said.
On India’s growth, Das said, “Real GDP (gross domestic product) grew by 13.5 per cent (year-on-year) in Q1FY22-23 (first quarter), surpassing the pre-pandemic level by 3.8 per cent. This was led by robust growth in private consumption and investment demand.”
He also said there was a sustained revival in urban demand which should get a further impetus from the unfettered celebration of upcoming three festivals after two and half years of living with Covid-19 and that rural demand was also gaining gradually.
The standing deposit facility rate and the marginal standing facility rate were also increased by the same quantum to 5.65%and 6.15%, respectively.
RBI retained its Consumer Price Index (CPI)-based inflation forecast of 6.7 per cent for the current financial year, while stating for the coming quarters as: Q2 7.1 per cent, Q3 6.5 per cent, and Q4 5.8. For the first quarter of the next financial year, the CPI infation is pegged at 5 per cent.
The MPC slashed the real GDP growth forecast of 7 per cent for the current financial year from 7.2 per cent in August forecast. GDP growth for the first quarter of the next financial year is seen at 6.7 per cent. India’s economy grew by 13.5 per cent in the April-June period this fiscal — the fastest in the last four quarters — on account of better performance by the agriculture and services sectors.
The U.S. Federal Reserve’s relentless and aggressive interest rate hikes over recent months have sent the rupee down sharply and prompted most economists to predict another 50 bps increase.
The MPC has raised rates by a total 140 bps in the last three meetings, including consecutive 50 bps moves in the last two.
India’s annual retail inflation rate accelerated to 7% in August, driven by a surge in food prices, and has stayed above the RBI’s mandated 2-6% target band for eight consecutive months.
Das in the last policy said they will do ‘whatever it takes to cool inflation that has not been in any mood to ease below 6%. Since the last meeting, price pressures have intensified again and India’s local currency has slumped to a nadir courtesy of an aggressive Fed that amplified the hawkish tone.
In the current financial year, the RBI has raised the repo rate by 190 bps. In August, the RBI MPC increased the repo rate by 50 bps to 5.4 per cent from 4.9 per cent in June.