New Delhi: The Reserve Bank of India slowed the pace of interest-rate increases for the second straight time when it on Wednesday expectedly hiked borrowing costs by 25 basis points while keeping the door open for more hikes as core inflation remained high. The move to raise the rate will make loans — including housing and auto — and corporate credit expensive.
The RBI’s six-member Monetary Policy Committee voted 4-2 to raise the benchmark repurchase or repo rate to 6.50 percent and retain its stance of withdrawing accommodation, which was adopted early last year.
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This is the sixth straight increase in interest rates since May last year, and the cumulative hike now totals 250 bps. The RBI raised interest rates by 35 bps in December 2022. Rates were hiked by 40 bps in May and 50 basis points each in June, August, and September.
While the headline inflation print has seen a downward trajectory and has remained below the upper limit of 6 percent in November and December 2022, the MPC continues to have concerns about the core inflation, which has stayed above 6 percent for the past 15 months.
“The stickiness of core or underlying inflation is a matter of concern. We need to see a decisive moderation in inflation. We have to remain unwavering in our commitment to bring down CPI headline inflation,” RBI Governor Shaktikanta Das said while announcing the committee’s decision.
On the growth front, the RBI projected GDP growth at 6.4 percent for the fiscal starting April 1 (2023-24), down from 7 percent in the current year. It also believes that the global growth environment has slightly improved, with the latest global data indicating higher prospects of a soft landing.
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Das said the Indian economy remains resilient in the face of considerable uncertainties on global commodity prices. “The global economic outlook does not look as grim now as it did a few months ago. Growth prospects in major economies have improved, while inflation is on a descent though still remains well above target in major economies.
The situation remains fluid and uncertain,” he said. “Commodity prices may remain firm with the easing of COVID-19 related restrictions in some parts of the world.” The liquidity in the system is expected to remain slightly in surplus with most liquidity enhancement measures of the pandemic period having been withdrawn.
Other measures announced after the MPC meeting include allowing lending and borrowing of government bonds, issuance of guidelines on green deposits and climate financing risks and allowing foreigners access to the Unified Payments Interface (or digital transactions).
