RBI increases repo rate by 25 basis points to 6.5%

In recent developments, the Reserve Bank of India’s Monetary Policy Committee (MPC) has reportedly opted to raise the repo rate by 25 basis points, as announced by Governor Shaktikanta Das. The RBI governor remarked that the global economic outlook has improved as inflation is ebbing. “RBI’s MPC decided by a 4:2 vote to remain focused on the withdrawal of accommodative policy,” he said.

Stating that the projected GDP growth is 6.4 percent for 2023-24, he added, “Amid volatile global developments, the Indian economy remains resilient.” According to Das, retail inflation is expected to hover around 5.6 percent in the fourth quarter and CPI inflation will average 6.5 percent.

“Looking ahead, while inflation is expected to moderate in 2023-24, it is likely to roll above the 4 percent target. The outlook is clouded by continuing uncertainties from geopolitical tensions, global financial market volatility, rising non-commodity oil prices, and volatile crude oil prices,” Das said.

The real GDP growth projections for 2023-24 are as follows: 7.1 percent for the first quarter, 6.2 percent for the second quarter, 6 percent for the third quarter, and 5.8 percent for the last quarter.

The announcement is the first Monetary Policy statement of the year. Last year, in December, the repo rate was increased by 0.35 percent to 6.25 percent, with the reverse repo rate remaining at 3.35 percent.

In the wake of the increased repo rate, banks are expected to hike interest rates on retail loans and extend the tenure of the same instead of monthly EMIs.

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