The Reserve Bank of India on Friday increased the policy repo rate by 50 basis points to 5.4 per cent, governor Shaktikanta Das announced. The repo rate is now back to pre-pandemic levels, and the highest since 2019.
In simple words, repo rate is the interest charged by the Reserve Bank of India when commercial banks borrow from them by selling their securities to the central bank. Since May, the central bank has raised benchmark rate by 1.40 per cent.
“Real GDP growth projection for 2022-23 retained at 7.2%, with Q1 at 16.2%,” the governor announced.
This is the third straight repo rate increase in as many months by the country’s central bank. “Indian economy has been grappling with high inflation,” the governor said.
Das, however, added that the country’s financial sector remains well capitalised and the country’s forex reserves provides insurance against ‘global spillovers’. “IMF has revised downwards economic growth projection and expressed risk of recession,” he added.
The RBI governor also said that the edible oil prices are likely to soften further.
The Consumer Price Index (CPI) based inflation, which RBI factors in while fixing its benchmark rate, stood at 7.01 per cent in June. Retail inflation has been ruling above the RBI’s comfort level of 6 per cent since January this year.
Inflation based on the Wholesale Price Index (WPI) remained in double-digit for 15 months in a row. The WPI reading was at 15.18 per cent in June.
The latest RBI action follows the Bank of England raising rate by 50 basis points, the biggest hike in 27 years, to 1.75 per cent.
Last month, the US Federal Reserve effected its second consecutive 0.75 percentage point interest rate increase, taking its benchmark rate to a range of 2.25-2.5 per cent.
(With PTI inputs)