Repo rate hiked by 25 bps, GDP forecast now at 7%

On Wednesday, the Reserve Bank of India (RBI) governor Shaktikanta Das announced a repo rate hike of 25 basis points (bps), taking the key benchmark interest rate to 6.5 per cent. The MPC’s decision was split 4-2. This is the first rate hike in 2023. Before this, the repo rate was hiked by 35 bps on December 7.

Das also announced that the MPC has decided to focus on withdrawal of the “accommodative stance” as the “situation does not look so grim now”. The MPC met on February 6, and the meeting concluded on February 8.

Das said that amid volatile global developments, the Indian economy remains resilient. However, the weak global demand and the current economic environment would be a drag on domestic growth. The central bank will maintain a “strong vigil” on the economic situation.

Das also announced a rise in GDP growth forecast for FY23 from 6.8 per cent to 7 per cent. For FY24, the growth rate was pegged at 6.4 per cent. In the latest Economic Survey of the finance ministry, growth projection was 6-6.8 per cent for 2023-24.

“The overall stance has been maintained and not yet shifted to neutral indicating the approach RBI to take calibrated steps to meet the challenges of the growth v/s inflation matrix. The persisting uncertainties and volatile global scenario have prompted the RBI to revise downward the next year’s GDP growth rate to 6.4 per cent which is however still well comparable with peers,” said Jyoti Prakash Gadia, managing director (MD) at Resurgent India.

RBI Governor said that the “world economy does not look so grim now”, and the inflation has been coming down. In Q4, the retail inflation is expected to average 5.7 per cent. But the core inflation remains “sticky”. For FY23, the inflation projection has been kept at 6.5 per cent. For FY24, the inflation has been pegged at 5.3 per cent.

He added that even though the inflation will moderate in the next fiscal, it will remain above the 4 per cent level. The RBI is mandated to keep inflation at 4 per cent with a margin of 2 per cent on either side.

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