New Delhi: RBI governor Shaktikanta Das also projected a GDP growth of 6.4% for 2023-24; a reduced retail inflation at 6.5% for 2022-23; and 5.3% for the next fiscal.
The Reserve Bank of India on Wednesday raised the repo rate — or the rate at which the central bank lends money to commercial banks or financial institutions — by 25 basis points to 6.5%.
The bank was expected to sign off 2023 by making a small increase since retail inflation had finally come within its tolerance band of 2% to 6% in the last two months of 2022. But Governor Shaktikanta Das warned Tuesday that core inflation still remained high.
The RBI had raised the key lending rate by 35 basis points in December, after three straight 50 bps hikes, and said its fight against inflation was not over yet.
Das said Tuesday that the Indian economy remained resilient amid “volatile global developments”. But he also said that core inflation remained sticky and that weak global demand and the current economic environment could be a drag on domestic growth. “The stickiness of core or underlying inflation is a matter of concern. We need to see a decisive moderation in inflation,” he said.
Das said the recently-concluded meeting of its monetary policy committee (MPC) — responsible for fixing the benchmark interest rate — decided by a 4:2 vote to remain focused on withdrawal of the accommodative policy.
The committee, comprising three members from the central bank and three external members, raised the key lending rate in a split decision.
“The rate hike of 25 bps is considered appropriate at this juncture… the monetary policy will remain agile and alert to inflation,” Das said.
He added: “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.”
Das also projected a GDP growth of 6.4% for 2023-24; a reduced retail inflation of 6.5% for 2022-23; and 5.3% for the next fiscal. For the fourth quarter of this fiscal, Das expects retail inflation to average 5.6%.
Earlier on Tuesday, US Federal Reserve Chair Jerome Powell also said disinflation had started and that he expected significant declines in inflation this year. This raised hopes in world markets of less aggressive rate hikes in the future.
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