RBI Monetary Policy: RBI hikes repo rate to 4.90%, inflation at 6.7, GDP growth forecast at 7.2% in FY23

RBI Monetary Policy: Document with Financial Data
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RBI Monetary Policy: On Wednesday, 8 June 2022, the Reserve Bank of India (RBI) increased the repo rate by 50 basis points to 4.90% and this is the second time in five weeks the repo rate has been increased by 50 basis points.

Whereas the Monetary Policy Committee (MPC) had hiked the repo rate by an unspecified 40 basis points on May 4, 2022, and also raised the CRR by 50 basis points to 4.5%, after which the liquidity of Rs 85000 crore was withdrawn from the banking system.

The Monetary Policy Committee (MPC) has increased the Standing Deposit Facility Rate by 50 basis points to 4.65% from 4.15% earlier and increased the Marginal Standing Facility rate by 50 basis points to 5.15% from 4.65% earlier.

India is Asia’s third-largest economy with the central bank raising the repo rate by 50 basis points for the second time in five weeks to control persistently high inflation and 220 basis points higher than the RBI’s inflation forecast in February for FY 23.

RBI’s forecast released in April 2022 had pegged retail inflation for FY23 at 6.3 percent in Q1, 5.8 percent in Q2, 5.4 percent in Q3, and 5.1 percent in Q4.

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Reserve Bank of India (RBI) Governor Shaktikanta Das said inflation is likely to remain above the RBI’s upper tolerance band in the first three-quarters of FY 2022-23 and pegged a price forecast of $105 per barrel for India’s crude oil basket.

The home loan interest rate was 6.5% in April 2022, after which the bank increased the home loan interest rate to 7.6% after the RBI increased the repo rate in May 2022, this has made home loans costlier.

The Reserve Bank of India also indicated that inflationary pressures have deepened more rapidly than expected and the Monetary Policy Committee (MPC) raised its inflation forecast for FY23 to 6.7%.

India’s 10-year bond yield on Wednesday rose to 7.56%, the highest level since March 2019, after the Reserve Bank of India hiked its key policy rates. While the Indian stock market index Nifty and Sensex fell to their lowest levels in almost two weeks at 16293.49 and 34831.95 points respectively.

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RBI Governor Shaktikanta Das said that despite 2 consecutive hikes in the repo rate, it is still below pre-pandemic levels. On May 4, 2022, RBI raised the CRR by 50 basis points and the repo rate by 40 basis points to 4.4% for the first time since August 2018.

The Reserve Bank of India (RBI) raised its inflation forecast for the fiscal year 2022-23 to 6.7% from 5.7% and pegged the real GDP growth forecast at 7.2%.

RBI has pegged India’s GDP growth forecast for FY23 at 16.2% in Quarter 1, 6.2% in Quarter 2, 4.1% in Quarter 3, and 4.0% in Quarter 4.

In March 2020, due to the COVID-19 pandemic, the RBI had cut the repo rate by a total of 115 basis points.

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According to the data released by the Ministry of statistics and program implementation (MOSPI) on Thursday 12th May 2022, the inflation rate in India rose to an eight-year high of 7.79% from 6.95% on a year-on-year basis, which is above the upper limit of RBI’s 2% to 6% inflation tolerance band and the inflation increased from 0.96% to 1.43% on a month-on-month basis.

The wholesale price index (WPI) inflation in India increased from 14.55% to 15.08% on a year-on-year basis, as per the data released by the Office of the Economic Advisor India on Tuesday, 17 May 2022.

The RBI’s forecast released on Wednesday 8 June 2022 has pegged the Consumer Price Index (CPI) inflation for FY23 at 7.5% in Q1, 7.4% in Q2, 6.2% in Q3, and 5.8% in Q4.

Whereas in April 2022, RBI had pegged the Consumer Price Index (CPI) inflation for FY23 at 6.3% in Q1, 5.8% in Q2, 5.4% in Q3, and 5.1% in Q4.

RBI allowed Urban Co-operative Bank to provide door-step banking facilities and lending to the residential housing sector like commercial real estate.

On Wednesday 8th June 2022 RBI has increased the limit for recurring e-payments from Rs 5000 to Rs 15000 to facilitate transactions like subscriptions and allowed the linking of credit cards starting with Rupay credit card with UPI (Unified Payment Interface). Earlier, users could do transactions only by linking the debit card linked to their savings or current account with UPI.

Recently NPCI (National Payments Corporation of India) also approved to expand the Whatsapp payment service to 100 million users.

The RBI Governor said that the banking sector is growing with good growth for the last few years and India’s foreign exchange reserves reached $ 601.1 billion on June 3, 2022.

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