RBI Raises Repo Rate by 50bps to 5.4% to Tame Inflation; house, consumer loans are becoming more expensive

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RBI raises policy rate for third time this fiscal year

Photo: BCCL

Mumbai: The RBI’s Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, on Friday raised the key rate at which it lends to commercial banks by 50 basis points to 5.4% to contain inflation.
The Reserve Bank’s rate-setting committee began its three-day bi-weekly monetary policy deliberations on Wednesday amid expectations that the interest rate will be raised to at least the pre-pandemic level of 5.15% to control high retail price inflation.

The marginal standing facility (MSF) and bank rates were adjusted to 5.65% from 5.15%, Das announced.

With this rise, the apex bank has raised the repo rate three times in the past three months. The central bank had already announced that it would gradually withdraw its accommodative monetary policy.

Previously, the RBI raised the short-term borrowing (repo) rate by 40 basis points in May and by 50 basis points in June this year.

Regarding the economic growth projections, the RBI Governor said that the GDP growth forecast for FY23 has been retained at 7.2%.

The Reserve Bank, however, surprisingly left its inflation forecast unchanged at 6.7% as core inflation remained high.

The central bank and government have taken steps to contain inflation which has been hovering above the RBI’s comfort level of 6% since January this year.

Experts were of the opinion that the RBI would raise the benchmark rate to at least pre-pandemic levels during this series of policy meetings and even more in the following months.

The government has instructed the RBI to ensure that inflation based on the consumer price index remains at 4% with a margin of 2% on either side.

Finance Minister Nirmala Sitharaman in Rajya Sabha said on Tuesday: “We have made sure that the Reserve Bank of India and the government together take enough measures to ensure that it (inflation) is kept within the strip of 7 or ideally below 6”.
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