RBI Hikes Repo Rate By 50 bps, Forecast FY23 CPI Inflation To 6.7%

The RBI has raised its key lending rate, the repo rate by 50bps as was expected by most analysts. Currently, India's repo rate is standing at 4.90%. "The MPC unanimously decided to raise the rates on the back of inflationary pressures and higher supply shocks," according to RBI. The bank is on the way to withdrawing its accommodative stance now. The mounting inflation rate in the country has been a major challenge for the country's economic growth. Due to high inflation, the demands for goods are falling, and common citizens are under pressure. So, the central bank's key focus is to improve the demand side now. On that ground, reducing the fuel prices and squeezing the inflation rate are the two-way outs for the government.

Today, the central bank has increased the FY23 CPI inflation forecast to 6.7% from earlier 5.7%. The climbing inflation which is the major issue at the present moment is expected to stay above 6% in the first 3 quarters of this fiscal. Shaktikanta Das, the RBI Governor said, "Our steps will be calibrated, focussed on bringing down inflation to target level." On the other hand, on a positive note, India's exports have performed quite well, according to the RBI report. As on June 3, this year, the country's forex reserves stood at $601.1 bn.

Shaktikanta Das has also stated that the country's economic development is resilient, while the RBI will keep supporting the growth. The government is confident about the fiscal's GDP growth. This is the second time, the central bank has raised interest rate after March 2020, when they reduced the key lending rate to cushion the economy from the pandemic. On May 4, this year, in an off-cycle meeting, RBI raised the rate for the first time after that. And today, after the three-day policy meeting they have initiated another rate hike. Analysts are expecting that the RBI will continue hiking the repo rate from now on, to keep the inflationary pressure under control.