RBI Retains Real GDP Growth For FY23 At 7.2%, Hikes Key Lending Rate By 50bps

The Monetary Policy Committee (MPC) of RBI had its policy meeting from 6-8 June. Today, after assessing the macroeconomic situation and the outlook, the RBI has unanimously increased the repo rate by 50 basis points to 4.90%. Additionally, the central bank also retains India's real GDP growth rate at 7.2% for FY23. Similarly, RBI retains the real GDP growth rate for Q1 at 16.2%, for Q2 at 6.2%, for Q3 at 4.1%, and for Q4 at 4.0%, with risks broadly balanced.

Recently, the National Statistical Office (NSO) released its provisional estimates, which informed India's real gross domestic product (GDP) growth in FY22 is estimated at 8.7%. The level of real GDP in FY22 has exceeded the pre-pandemic (2019-20) level. Additionally, on the supply side, major categories also surpassed the previous year's levels.

Commenting on the economic developments, Shaktikanta Das, RBI Governor stated, "The forecast of normal south-west monsoon should boost Kharif sowing and agricultural output. This will support rural consumption. The rebound in contact-intensive services is expected to sustain urban consumption. Our surveys suggest further improvement in consumer confidence and households' optimism for the outlook a year ahead. Business sentiment remains upbeat according to the early results of our surveys. Nevertheless, the negative spillovers from geopolitical tensions; elevated international commodity prices; rising input costs; tightening of global financial conditions; and the slowdown in the world economy continue to weigh on the outlook."

The present repo rate hike by the central bank was an expected mover as the country is trying hard to combat its soaring inflation rate. Reducing fuel prices is another step the government is taking up to control inflation. The RBI report further added, "The standing deposit facility (SDF) rate stands adjusted to 4.65%; and the marginal standing facility (MSF) rate and the Bank Rate to 5.15%. The MPC also decided unanimously to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth."