RBI raised the repo rate by 50 basis points to 4.9%

The Reserve Bank of India’s monetary policy committee (MPC) in its June meeting raised the repo rate for a second straight month and stated that it would now focus on withdrawal of accommodation while dropping all mention of an accommodative stance from its script. The MPC collectively raised the repo rate by 50 basis points to 4.9% the biggest increase in more than a decade.

The MPC raised its inflation projection for FY23 to 6.7% from 5.7% earlier. RBI Governor Shaktikanta Das took care to highlight that around 75% of the increase in inflation projections can be associate to the food group which, in turn, is being influenced by external factors. “Further, the baseline inflation projection of 6.7% for 2022-23 does not take into account the impact of monetary policy actions taken today,” he said.

Surplus liquidity in the system remains above pre-pandemic levels, Das said. He sought to relieve concerns about the pace of liquidity withdrawal, saying that the process will be a computed one, taking care of the credit needs of the economy. “Given the elevated uncertainties of the current period, we have remained dynamic and pragmatic rather than being bound by stereotypes and conventions,” he added.

The absence of a hike in the cash reserve ratio (CRR) meant that bankers could also breathe easy. “RBI’s decisive and continued commitment to manage inflation further builds upon India’s toughness amidst the worldwide headwinds. India’s growth path will be bring up through these calibrated policies, opening up many opportunities on the way,” said, Citi India CEO Ashu Khullar

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