RBI hikes repo rate by 50 bps to 3-year high of 5.9%, GDP expected to grow at 7%

RBI Governor Shaktikanta Das on Friday announced that the central bank’s Monetary Policy Committee (MPC) has hiked the repo rate – or the key lending rate – by 50 basis points (bps) to a three-year high of 5.9 per cent.

The country is expected to have a real GDP of 7 per cent, which has been lowered from 7.2 per cent predicted earlier. “We are wakeful, ever vigilant, ever-striving,” the RBI Governor quoted Mahatma Gandhi during his address, while highlighting the measures taken to tackle the global challenges, and underlining that the national economy remains resilient.

“The global economy is in the eye of storm but India has withstood shocks over the last two years,” RBI governor said, adding that the inflation is hovering around 7 per cent and is expected to remain around 6 per cent in the second half of the year.

“Daunting challenges face us. A series of measures have been taken since April 2022 in the backdrop of geopolitical tensions, which also hampered the global supply,” he said, referring to the Ukraine war, which began in February. “The inflation rate is projected at 6.7 per cent,” he said. “The MPC has to remain alert and nimble in the wake of current conditions.”

The GDP grew by 13.5 per cent year-on-year in the first quarter, he highlighted. “While the real GDP growth in the first quarter of this year turned out to be lower than expectations, nonetheless it was 13.5 per cent, and perhaps the highest among the major global economies,” he further stressed.

Ahead of the crucial statement, markets opened in red with Sensex at 56,254. The National Stock Exchange (NSE) Nifty 50 index was down 0.3 per cent at 16,776. A Reuters poll showed a slim majority of economists – ahead of the statement – were expecting a 50 basis point hike and some others expected a smaller 35 basis point rise.

Last month, the MPC had announced an increase of the repo rate by another 50 basis points – one basis point is one hundredth of a percentage point taking it to 5.4%, a level last seen in September 2019. It was the third consecutive rate hike by the MPC since its unscheduled May 2022 meeting, HT had reported. The key committee had also retained its inflation and GDP growth projection for the fiscal year 2022-23 at 6.7 per cent and 7.2 per cent, respectively.

The MPC, since May, has raised the key policy rate by 190 basis points to cool off domestic retail inflation, which has stayed above the RBI’s upper tolerance limit of 6 per cent since January, news agency Reuters had highlighted in its report.

“The inflation trajectory remains clouded with uncertainties arising from continuing geopolitical tensions and nervous global financial market sentiments. In this backdrop, MPC was of the view that persistence of high inflation, necessitates further calibrated withdrawal of monetary accommodation to restrain broadening of price pressures, anchor inflation expectations and contain the second round effects. This action will support the medium-term growth prospects of our economy,” Shaktikanta Das stressed on Friday.