MPC Highlights – RBI Hikes Repo Rate by 50 basis points

The Reserve Bank of India today raised its Repo rate by 50 basis points to 4.90 percent. This is the second hike in the last five weeks. The last hike was announced in an unscheduled meeting on May 4th where the repo rate was raised by 40 basis points.

Read: RBI Repot Rate Hike Impact on Trade & Public 

RBI Governor, Shaktikanta Das, stated that the rates have been increased primarily to tame the rising inflation, which has been caused by elevated commodity prices due to the war in Ukraine. For consumers, this will cause a further increase in deposit rates and EMIs. 

Here are the key takeaways from today’s meeting: 

Savart trivia: What is Repo Rate?

The Repo rate is the key policy rate at which the RBI lends short-term funds to banks.

RBI is likely to increase the interest rates in the coming meetings as inflation is expected to remain high and growth is expected to slow down as a result – causing near-term challenges for the market. 

RBI revised the inflation estimates for FY23 (current year) from 5.7% to 6.7%. This is higher than the current RBI’s upper threshold of the target range, i.e., 6%.  

The GDP (Gross Domestic Product) growth rate estimate has been retained by RBI at 7.2% for FY23 compared to 8.7% in FY22. GDP growth rate is expectedly lower due to inflation impacting the consumption (private final consumption expenditure contributes more than 55% to the overall GDP).