Takeaways from RBI’s Monetary Policy meeting

Takeaways from RBI’s Monetary Policy meeting

The Monetary Policy Committee (MPC) of the Reserve Bank of India hiked the key policy rate today (i.e. (December 7). RBI has increased the repo rate or the rate at which the RBI lends funds to banks by 35 basis points to 6.25 per cent in a bid to rein in retail inflation.

The decision of rate hike:

The hike in Repo rate, fifth since May 2022, is a majority decision of the six-member MPC that is headed by RBI Governor Shaktikanta Das. The policy stance is remained accommodative with four members supporting the decision.

The impact of RBI’s decision:

  • Lending rates of banks might be going up as the cost of funds is expected to rise further.
  • The external benchmark linked lending rate (EBLR) of banks is also expected to rise by 35 bps as such loans are linked to the Repo rate.
  • Around 43.6 per cent of the total loans have been linked to the Repo rate as of now.
  • The associated loans of 49.2% with the Marginal cost of funds-based lending rates (MCLR) are also anticipated to move up.
  • The hike is going to help in moderating inflation in the country.

Reason behind raising rates:

  • The RBI has increased the policy rate in a bid to bring down inflation from the current level.
  • Inflation in October brought down to 6.77% but it remains well above the RBI’s comfort level of 4 per cent.
  • The central bank’s worry is about rising core inflation — the non-food, non oil part of inflation — that out of control again after moderating over the summer.
  • Households’ inflation outlooks remain high as food price inflation continues to remain elevated.
  • Weakness in the rupee against the US dollar is also the main inflationary concerns of the RBI. It has given that a third of the CPI basket consists of import.

The forecast by RBI about growth and inflation:

  • Under the flexible inflation targeting framework, the RBI is trying to maintain retail inflation at 4 per cent (+/-2 per cent).
  • The rate setting panel has down their projection about the real gross domestic product (GDP) for fiscal 2022-23 to 6.8 per cent from 7 per cent in the previous projection announced during the September policy.
  • The MPC has maintained their inflation projection at 6.7 per cent for 2022-23.
  • The MPC lowered growth projection for the current fiscal year due to concerns over the “bleak” global economic outlook.

Question & Answer:

Q1. How much percent repo rate hiked at by recent monetary policy committee of RBI?

Ans. 6.25%

Q2. What is the main reason behind hiking the repo rate by RBI’s MPC?

Ans. Inflation in India as well as global economy

Q3. How much percent growth projection has been made by RBI for GDP of fiscal year 2022-23?

Ans. 6.8%

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