RBI hikes policy rate, cuts growth forecast

That the Monetary Policy Committee (MPC) of the Reserve Bank of India will increase interest rates for the fourth consecutive time was almost a given, and the 50 basis points one basis point is one hundredth of a percentage point -hike which was announced on September 30 is in line with analyst estimates.

- Roshan Kishore

The more awaited parts of the MPC resolution were RBI's growth and inflation forecasts, and its take on the volatility in international currency and financial markets, and their impact on the Indian economy.

On these counts, MPC has struck a cautionary note, while underlining that the domestic economy remains relatively resilient and monetary policy will continue to remain vigilant to contain inflation while continuing to support growth.

The MPC increased the policy rate by 50 basis points on September 30 in a five-one decision (one MPC member voted for a hike of 35 basis points) to 5.9%.

This means that the central bank has increased policy rates by 1.9 percentage points from the 4% level at which it was in April 2022. While the cumulative pace of rate hike is among the sharpest in the past few years, governor Shaktikanta Das underlined that the real rate (after adjusting for inflation) was still lower than what it had been in the past.

"Thus, even as the nominal policy repo rate has been raised by 190 basis points so far (including today's increase), the policy rate adjusted for inflation trails the 2019 levels. The overall monetary and liquidity conditions, therefore, remain accommodative and hence, the MPC decided to remain focused on withdrawal of accommodation", Das said in his statement. The repo rate (or the policy rate) is that at which the central bank lends to commercial banks.