Monetary Policy Review: RBI Hikes Repo Rates By 35 Basis Points

In a move that was largely expected, the Reserve Bank of India today hiked repo rates by 35 basis to 6.25%. The move is expected to lead to further increase in loan rates as well as small hikes in fixed deposit interest rates. Most economists, analysts and from industry had largely anticipated the rate hike and believe there could be a cause going forward.

The hike in interest rates is largely to tame inflation, which has been way ahead of the RBI's upper tolerance limit of 6%. In fact, for three successive quarters inflation was above 6%, pushing the RBI to write to the government.

Nish Bhatt, Founder & CEO, Millwood Kane International - an Investment consulting firm stated that it was as expected from the MPC to hike key rates by 35 bps. "The repo rate is now at a more than 4-year high. RBI maintains policy stance at Withdrawal of Accommodation. The softness in retail inflation has been the primary reason for the slower rate hike. CPI inflation cooled off to a 3-month low for October. The central bank has hiked rates by 50 bps three times before this and 40 bps in the month of May. The RBI has hiked rates for the fifth consecutive time this calendar year.

The central bank is expected to maintain the status quo in H1CY23, the cumulative rate hike has been 225 bps till now in this cycle. The economic growth, the trajectory of crude oil, inflation, and the geopolitical situation will guide RBI's action in H2CY23," he stated.

The Sensex reacted positively to the rate hikes and was up marginally in trade.