The Reserve Bank of India has raised the repo rate by 50 basis points to 4.9 percent, Governor Shaktikanta Das said on Wednesday, adding that inflation was likely to remain above the upper tolerance level for three quarters of this financial year.
He was speaking at a press conference after the end of the three-day monetary policy review meeting that started- ed on Monday.
Though the RBI raising policy rates in the ongoing monetary policy committee meeting was a “no brainer”, as said by its Governor Shaktikanta Das in a recent interview, investors, however, awaited the actual degree of percentage hike before taking fresh positions and future course of action in the financial markets. In early May, the RBI, in a sur- prise off-cycle meeting, hiked the repo rate by 40 basis points (bps) to 4.40 percent, amidst rising inflation concerns in the economy. The Repo rate is the rate at which the central bank lends short-term funds to banks.
In the same off-cycle meeting, the case reserve ratio was hiked by 50 basis points to 4.5 percent essentially to squeeze out some liquidity from the system.
India’s retail inflation accelerated to 7.79 percent in April, remaining above the tolerance limit of the central bank RBI for the fourth month in a row.
The retail inflation will likely remain above 6 percent for another few months.
Repo Rate for Financial Year 2023
Das on Wednesday cate gorically said India’s retail inflation will likely stay above the tolerance level till the third quarter of FY23 before moderating below 6 percent.
For FY23, RBI sees overall inflation at 6.7 percent, with 7.5 percent in Q1, 7.4 percent in Q2, 6.2 percent in Q3, and 5.8 percent in Q4, taking into consideration the normal monsoon and average crude oil basket price of $105 per barrel.