According to the Reserve Bank of India(RBI), the repo rate hiked by 35 basis points on Wednesday, reaching 6.25 percent . The RBI Monetary Policy Committee (MPC) chose to raise the rate, according to governor Shaktikanta Das, in order to lower high inflation to its target of 4%.
During its policy meeting on December 5-7, the six-member MPC continued to give withdrawing accommodation top priority.
It was not a unanimous decision, despite the fact that 5 of the MPC’s 6 members voted in favour of the rate increase. The vote was not unanimous because four of the six voting members did not concur on the position.
The rate for the Standing Deposit Facility, which serves as the floor of the interest rate corridor, has increased by 35 basis points to 6%. The margin standing facility rate, which makes up the top portion of the interest rate corridor, has also increased by 35 basis points to 6.50 percent.
The rate hike was in line with market forecasts because a Business Standard survey of 10 respondents predicted a rate increase of 35 basis points. Currently, the repo rate is at its highest point since February 2019. In 2022, the MPC has already raised the repo rate by 225 basis points.
The yield on the benchmark 10-year bond was 7.29% at last check, up four basis points from the previous close. Bond prices and yields move in the opposite directions. The first decline in bonds was attributed by traders to Das’ repeated expressions of concern over persistent and sticky core inflation.
The rupee’s last price against the US dollar remained constant from the previous closing at 82.62.
The MPC maintained its 6.7% inflation forecast for the current fiscal year, according to Das. The MPC has, however, marginally raised its forecasts for both the current quarter and the one after that. The CPI will likely show 6.6% inflation from October to December, up from the previously anticipated 6.5%. In January through March, headline retail inflation is projected to be 5.9%, down from the earlier prediction of 5.8%.
Das claims that the MPC has maintained its 5% prediction for inflation in the first quarter of the upcoming fiscal year, while 5.4% is predicted for the second quarter.
Das stated that CPI-based inflation is expected to decline in the future, but emphasised the persistence of pricing pressures and the stickiness of core inflation, which removes the volatile components of food and fuel.
“The medium-term inflation aim is surrounded by more uncertainty…
More calibrated monetary policy action is required, according to Das, to keep inflation expectations anchored, end the core inflation persistence, and control second-round effects.
Das pointed to the current “main danger” as the need to reduce excessive core inflation on numerous occasions. He identified pressure spots, including rising cereal, milk, and spice prices, despite predictions that future food inflation will moderate.
“Overall CPI pricing momentum remained high,” he said.
Consumer price index-based inflation has been significant for a number of months due to supply-side disruptions brought on by the Covid-19 epidemic and an increase in world commodity prices following Russia’s invasion of Ukraine in late February.
The MPC’s tolerance range of 2-6% for CPI inflation has been exceeded for ten consecutive months. The price index was 6.77 percent in October and has been above 4% for 37 straight months. The core inflation rate was about 6%.
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