RBI raises repo rate by 50 bps to 3-year high

The six-member Monetary Policy Committee (MPC) of the RBI has decided to increase the policy repo rate by 50 basis points (bps) to 5.9 per cent — which is largely on expected lines — as inflation continues to stay above 6 per cent, the upper level of its tolerance band, for the past eight months.

Except External Member Ashima Goyal, who voted for a 35-basis point hike, the rest were in favour of what the MPC settled for. Since May this year, the repo rate has been increased by 190 bps to 5.9 per cent, a three-year high.

The committee also decided to remain focused on withdrawing “accommodation”, which was supported by all except External Member Jayanth Varma.

While the policy statement was seen as dovish, RBI Governor Shaktikanta Das alluded to a third major shock — the other two being the pandemic and Russia-Ukraine war — which is aggressive monetary policy actions by developed economies.

“The world is in the eye of a new storm … The recent sharp rate hikes and forward guidance about further big rate hikes have caused tightening of financial conditions, extreme volatility and risk aversion … There is nervousness in financial markets with potential consequences for the real economy and financial stability,” Das said, adding that despite this unsettling global environment, the Indian economy continued to be resilient.

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