The Reserve Bank of India (RBI) Monetary Policy Committee hiked the benchmark repo rate by 50 basis points—its third straight increase—in its continuing efforts to quell inflation in the economy. The committee had first raised rates by 40 basis points at an unscheduled meeting in May, followed by 50 basis points in June.
Following the review, the MPC decided:
To raise the repo rate to 5.4% unanimously.
The standing deposit facility rate, pegged 25 basis points below the repo rate, is adjusted to 5.15%.
The marginal standing facility rate, which is 25 basis points above the repo rate, is now at 5.65%.
The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.While the decision on the rate hike was unanimous, committee member Jayanth R. Varma expressed reservations on the wording of the stance.
The inflation forecasts suggest that, for the first time under the new framework, the RBI will be seen to have failed in its inflation objective. Failure is defined as three consecutive quarters of above target inflation and requires the central bank to explain the failure in a letter to the government.
On the other hand, elevated risks emanating from protracted geopolitical tensions, the upsurge in global financial market volatility and tightening global financial conditions continue to weigh heavily on the outlook.
Going forward the RBI will remain vigilant on the liquidity front and conduct two-way fine-tuning operations as and when warranted – both variable rate repo and variable rate reverse repo operations of different tenors, depending on the evolving liquidity and financial conditions, Governor Shaktikanta Das stated.