RBI Raises rates to tame infation

MPC increases reporate by 50 basis points FY23 inflation estimate to 6.7%

The Reserve Bank of India’s

Monetary Policy Committee

(MPC) on Wednesday voted

unanimously to raise the re

po rate by 50 basis points to

4.90% in a bid to slow inflfla

tion which it estimates will

average 7.5% in the current

April-June quarter.

The RBI’s move will in

crease borrowing costs

across the board, from those

seeking loans to buy cars

and homes, to MSME fifirms

looking to raise capital.

The MPC also decided to

remain focused on the with

drawal of accommodation

which had been provided to

support the COVID-19 hit

economy, to ensure that in-

flflation remains within the

target going forward, while

supporting growth, RBI Go

vernor Shaktikanta Das said

announcing the decision.

“Inflflation has steeply in

creased much beyond the

upper tolerance level. A

large part of the rise in inflfla

tion is primarily attributed

to a series of supply shocks

linked to the war [in Uk

raine]. In these circumstanc

es, we have started a gradual

and orderly withdrawal of

extraordinary accommoda

tion instituted during the

pandemic,” he explained.

Based on the assumption

of a normal monsoon in

2022, and average crude oil

price (Indian basket) of $105

per barrel, retail inflflation

was now projected at 6.7% in

2022-23, with Q1 at 7.5%; Q2

at 7.4%; Q3 at 6.2%; and Q4 at

5.8%, with risks evenly ba

lanced, the RBI said.

About 75% of the increase

in inflflation projections could

be attributed to the food

group, Mr. Das said, observ

ing that “the recent spike in

tomato prices” were adding

to food inflflation.

Growth forecast

The MPC retained its fore

cast for real GDP growth for

2022-23 at 7.2%. Output

would expand by 16.2% in

Q1, by 6.2% in Q2, 4.1% in Q3

and 4.0% in Q4, the RBI said.

“Further rate hikes re

main clearly on the table,


Leave a Reply

Your email address will not be published. Required fields are marked *