RBI hikes Repo rate by 50 BPS to 5.9%; FY23 GDP forecast slashed

The six-member Monetary Policy Committee (MPC) headed by RBI Governor on Friday announced the hike in the repo rate by 50 basis points to 5.90%, the fourth straight increase in the current cycle, to tame the sustained above-target retail inflation rate. The standing deposit facility (SDF) rate and the marginal standing facility (MSF) rate were also increased by the same quantum to 5.65%and 6.15%, respectively

With this, the RBI has effectively raised rates by 230 basis points since April. The RBI has lowered the real gross domestic product (GDP) growth forecast for FY23 to 7% from 7.2% the Governor said. The recent correction in global commodity prices if sustained may ease cost pressures in the coming months. Today inflation is hovering around 7% and we expect it to remain elevated at 6% in the second half of the year, he added.

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth, it said.

The revised policy rates are as under.

SDF is the new floor for policy rates introduced by RBI. The SDF rate is applied for which banks park their excess funds with the RBI without any collateral. Although, the earlier system of reverse repo rate will remain as part of RBI’s toolkit and its operation will be at the discretion of the RBI for purposes specified from time to time, according to RBI’s announcement. This move of RBI makes the reverse repo rate redundant for now.