Rate hike door kept open

MPC raises repo rate by 25 bps to 6.5%. FY24 consumer price inflation seen at 5.3%. Economic growth estimated at 6.4%

- SHASHANK DIDMISHE JOYDEEP GHOSH

THE RESERVE BANK of India's Monetary Policy Committee (MPC) increased the repo rate by 25 basis points to 6.5% on Wednesday, but surprised markets by leaving the door open to more increases in future, saying core inflation remained high.

The MPC maintained its hawkish stance of "withdrawal of accommo dation", dashing hopes for a definite signal for a pause in rate hikes. The apex bank did not give any forward guidance, which Reserve Bank of India governor Shaktikanta Das explained saying "it can become counterproductive".

After Wednesday's 4:2 majority decision in the MPC, interest rates have gone up by 250 basis points in the current cycle, which was kicked off by a 40 bps rate hike in an off-cycle meeting in May last year. As a result, the standing deposit facility (SDF) rate will be 6.25% and the marginal standing facility (MSF) rate and the bank rate have been raised to 6.75%.

"The rate hikes since May 2022 are still working their way through the system. On balance, the MPC was of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored, break the persistence of core inflation and thereby strengthen the medium-term growth prospect," said Das. He said the inflation-adjusted, real interest rate remains below pre-pandemic levels and liquidity remains surplus, even though it is lower than during the pandemic.