Reserve Bank raises rates by 50 bps, brings down growth outlook to 7%

The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday raised the policy repo rate by 50 basis points (bps) to 5.9%, with RBI Governor Shaktikanta Das citing the ‘persistence of high inflation that necessitated the withdrawal of monetary accommodation to restrain broadening of price pressures and contain second round effects’.

“This action will support medium-term growth prospects,” Mr. Das added.

The committee also voted by a 5:1 majority to “remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward”.

“We are in the midst of... a storm arising from aggressive monetary policy actions and even more aggressive communication from advanced economy central banks,” he said, announcing the policy.

Noting that these actions had caused tightening of financial conditions, extreme volatility and risk aversion, he asserted: “Despite this unsettling global environment, the Indian economy continues to be resilient; there is macroeconomic stability.”

However, given headwinds from extended geopolitical tensions, tightening global financial conditions and a possible decline in external demand, Mr. Das said the RBI projected economic growth in FY23 at 7% (down from the 7.2% it had forecast earlier).

The MPC, however, retained the retail inflation projection for the current fiscal year at 6.7%.