RBI Raises Repo Rate to 5.50% as Inflation Risks Intensify
The Reserve Bank of India (RBI) has raised the repo rate by 25 basis points, from 5.25% to 5.50%, marking its first repo-rate increase since February 2023. The decision was unanimously approved by the six-member Monetary Policy Committee (MPC) amid concerns over rising inflation, higher oil prices and a weaker rupee.
Alongside the rate increase, the RBI changed its monetary policy stance from “neutral” to “calibrated tightening”, signalling a stronger focus on containing inflationary pressures. Governor Sanjay Malhotra indicated that rate cuts are unlikely in the near term, while further tightening could remain an option if inflation risks intensify.
Despite the tighter monetary stance, the RBI has raised its real GDP growth forecast for the current financial year to 7.1% from 6.7%. The central bank expects economic activity to remain supported by domestic consumption, investment, manufacturing and services.
The RBI also increased its core inflation forecast to 4.4% from 4.3%. The rate hike is expected to influence borrowing costs, particularly for loans linked to external benchmarks, while potentially supporting efforts to moderate inflation.
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