RBI Monetary Policy: Shaktikanta Das, the Governor of Reserve Bank of India, announced the bi-monthly monetary policy today. In the consecutive fifth hike this year, the RBI’s Monetary Policy Committee on 7 December 2022 raised the repo rate by 35 basis points (bps) to 6.25 per cent with immediate effect, making loans expensive. The policy rate is now at the highest level since August 2018. The RBI has maintained policy stance at ‘withdrawal of accommodation’.

“The global economy is still marred by uncertainty; Supply chains are being redrawn on considerations of geopolitical security. Food and energy security, along with climate change, are the biggest challenges to the world. India’s financial system remains robust and stable. India is seen as a bright spot in an otherwise gloomy world,” Das said.

India’s largest lender State Bank of India in a research report authored by Group Chief Economic Adviser Soumya Kanti Ghosh on Monday said: “We expect the RBI to hike rates in smaller magnitude in December policy attuned to emerging market central banks and the overall rate setting tone. A 35-bps repo rate hike looks imminent. We believe at 6.25 per cent, it could be the terminal rate for now”.

An Overviews:

Consumer price index (CPI) based retail inflation, which the RBI mainly factors in while arriving at its monetary policy is showing signs of moderation but still remains above the central bank’s upper tolerance level of 6 per cent since January this year.

The inflation dropped to 6.77 per cent in October from 7.41 per cent in the preceding month, mainly due to easing prices in the food basket, though it remained above Reserve Bank’s comfort level for the 10th month in a row.

The GDP growth in the second quarter of the fiscal slowed to 6.3 per cent as against a growth of 13.5 per cent in the preceding three months.

The magnitude of the hike is lower as compared with the 50 bps increase each in the previous three policy reviews and a 40-bps hike in the off-cycle monetary policy review in May this year. Hundred basis points are equal to one percentage point.

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The RBI has been tasked by the government to ensure the retail inflation remains at 4 per cent with a margin of 2 per cent. However, it failed to keep the inflation rate below six per cent for three consecutive quarters beginning January 2022. So it had to submit a report to the government detailing reasons for the failure to contain prices and remedial steps to rein in the price rise.