RBI hikes repo rate by 35 bps to 6.25%, pegs inflation at 4%+; 6.8% GDP growth projection

The Monetary Policy Committee of the Reserve Bank of India (RBI) has raised the policy repo rate by 35 basis points (bps) to 6.25 per cent with immediate effect from today, December 7. Notably, the decision was taken after the three-day-long MPC session that concluded on Wednesday.

"Monetary Policy Committee meeting met on 5th,6th and 7th December, based on an assessment of macroeconomic situation & its outlook, MPC decided by a majority of 5 members out of 6 to increase the policy repo rate by 35 basis points to 6.25% with immediate effect," RBI governor Governor Shaktikanta Das said.

Additionally, the RBI Governor pegged inflation to remain above 4% for the next 12-month period (the RBI has a 4%+-2% mandate) The GDP growth forecast for FY23 has been lowered to 6.8% from 7%.

RBI hikes Repo rate

The RBI Governor said that five out of the six members of the MPC opted to go for a hike in the repo rate during its meeting. It is pertinent to mention that it is the highest policy rate since August 2018.

Notably, the central bank had been hiking the key policy rate since May of this year to 6.25 per cent to cool off domestic retail inflation that has stayed above the RBI's upper tolerance limit for over three quarters now. In October, retail inflation was 6.77% as against 7.41% the previous month.

On GDP and CPI inflation 

On GDP, the RBI Governor said, "GDP growth forecast for October-December 2022 lowered to 4.4%. GDP growth forecast for January-March 2023 lowered to 4.2%. GDP growth forecast for FY23 lowered to 6.8% from 7%."

Speaking on the CPI inflation, Shaktikanta Das said, "CPI inflation forecast for October-December 2022 raised to 6.6% from 6.5%. CPI inflation forecast for January-March 2023 raised to 5.9% from 5.8%. CPI inflation forecast for April-June 2023 retained at 5.0%. CPI inflation is seen at 5.4% in July-September 2023. CPI inflation forecast for FY23 retained at 6.7%."