The RBI Monetary Policy Committee (MPC) on Friday decided to hike the repo rate by 50 basis points to 5.9 per cent, in-line with expectations. In the current financial year, the RBI has raised the repo rate by 190 bps. In August, the RBI MPC increased the repo rate by 50 bps to 5.4 per cent from 4.9 per cent in June. RBI Governor Shaktikanta Das said in his post policy meet address that the standing deposit facility (SDF) rate and the marginal standing facility (MSF) rate were also increased by the same quantum to 5.65% and 6.15%, respectively. He added that RBI will remain focused on ‘withdrawal of accommodation’.
The RBI guv added that inflation continues to be high. “After two shocks of coronavirus pandemic and the conflict in Ukraine, now we are in the midst of another shock, a storm, arising from aggressive monetary policies by the global central banks,” he said. Das further emphasised that the US dollar has reached a new high. “Emerging market economies are confronted with challenges of slowing global growth, elevated food and energy prices, spillovers from advanced economy policies, debt distress and sharp currency depreciation,” he said.
FY23 GDP growth forecast slashed to 7%
However, he maintained that the Indian economy remains resilient despite global headwinds wherein global recession fears are mounting, and inflation is high. The MPC cut the FY23 GDP growth forecast to 7% from 7.2% projected earlier. GDP growth for the first quarter of the next financial year is seen at 6.7%. India’s economy grew by 13.5% in the April-June period this fiscal, the fastest in the last four quarters, on account of better performance by the agriculture and services sectors. Meanwhile, the inflation projection for FY23 has been kept unchanged at 6.7% on upside risks to food prices. “Today inflation is hovering around 7% and we expect it to remain elevated at 6% in the second half of the year,” RBI guv said. For the first quarter of the next financial year, the CPI infation is pegged at 5%.
Rupee faring better compared to many other currencies
Talking about rupee depreciation in the last two weeks, RBI Governor said that the rupee movement is orderly against the US dollar. “Rupee depreciated only 7.4% this year till 28 September and has fared better than many other currencies. RBI does not have a fixed exchange rate for rupee highlighted Das saying, “The Indian Rupee is a freely floating currency, its exchange rate market determined. RBI does not have any exchange rate in mind.” He added that RBI intervenes in the market only to curb excessive volatility. “RBI forex reserves “umbrella” remains strong,” Das said.
Economic activity remains resilient
High frequency data for the second quarter indicate that economic activity remains resilient, private consumption has been holding up. “Rural demand is also gaining gradually, investment demand picking up, agriculture sector remains resilient,” Shaktikanta Das highlighted. “The outcome of the MPC meeting is on expected lines as RBI raised the repo rate by 50bps. The central bank gave a very balanced guidance emphasizing on continuing resilient domestic economic growth with risks being rising instability in the global economic and financial environment. Overall the markets have reacted positively to the policy announcement,” said Ritika Chhabra- Economist and Quant Analyst, Prabhudas Lilladher.