Noida, Oct 7 (APAC Media): The Reserve Bank of India (RBI) on Wednesday raised the benchmark repo rate by 25 basis points to 5.5 per cent, its first-rate increase since February 2023, as the central bank stepped up efforts to contain inflation amid heightened geopolitical tensions in West Asia.
The decision to raise the repo rate from 5.25 per cent to 5.5 per cent was taken unanimously by the Monetary Policy Committee (MPC), headed by Governor Sanjay Malhotra, amid rising inflation, elevated oil prices and a weakening rupee.
“System liquidity, as measured by the net position under the LAF, remained in surplus, averaging Rs 5.9 lakh crore per day since the last MPC meeting. Subsequent measures to absorb liquidity, along with quarterly advance tax outflows, moderated the surplus to some extent in September. Amid surplus liquidity conditions, the weighted average call rate largely remained in the lower half of the policy corridor in the recent period,” RBI Governor Sanjay Malhotra said.
In his MPC address, Malhotra said global inflation was likely to rise, while trade uncertainty persisted and global sentiment remained fragile. He also cautioned that the Iran conflict could disrupt global trade and supply chains.
The Indian economy remained strong and was expected to remain resilient, while indicating that the RBI was unlikely to cut interest rates in the near term. “Rate cuts are off the table in the near term,” the RBI governor added.
𝐑𝐁𝐈 𝐑𝐚𝐢𝐬𝐞𝐬 𝐑𝐞𝐩𝐨 𝐑𝐚𝐭𝐞 𝐛𝐲 𝟐𝟓 𝐁𝐚𝐬𝐢𝐬 𝐏𝐨𝐢𝐧𝐭𝐬 𝐭𝐨 𝟓.𝟓%
RBI raises the policy repo rate by 25 basis points to 5.5%. Consequently, the Standing Deposit Facility (SDF) rate stands at 5.25%, while the Marginal Standing Facility (MSF) rate and the Bank Rate stand at 5.75%. The Monetary Policy Committee changes its stance to “calibrated tightening”.
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RBI Turns to Calibrated Tightening Amid Inflation Risks
The Reserve Bank of India has shifted its monetary policy stance from “neutral” to “calibrated tightening”, signalling a greater focus on containing inflationary pressures. The change, the first since 2018, indicates that the central bank is likely to keep rates higher for longer while leaving the door open for further tightening if inflation risks intensify.
With a neutral policy stance, the RBI keeps the option of raising or lowering interest rates open, depending on how the inflation and growth outlook evolves. A calibrated tightening stance, in contrast, points to a preference for maintaining tighter monetary conditions to rein in sustained inflationary pressures.
The RBI has also raised its core inflation forecast for the current financial year to 4.4 per cent from 4.3 per cent earlier.
RBI Upgrades GDP Growth Forecast to 7.1%
The rate hike comes alongside an improved growth outlook, with the RBI raising its real GDP growth forecast for the year to 7.1 per cent from 6.7 per cent earlier.
The central bank said economic activity maintained momentum during the second quarter, covering July to September, with growth remaining broad-based.
“The MPC noted that the global context on account of geopolitical developments remains challenging. Nonetheless, the Indian economy has been strong. The economic momentum remains broad-based. The economy is expected to remain resilient,” the MPC said in its statement.
Experts React to RBI Rate Hike
“The 25-basis-point repo rate hike is a measured move, with its immediate impact on the economy likely to remain limited. While higher borrowing costs could weigh marginally on consumers and businesses, the key risk is whether the increase marks the start of a sustained rate-hike cycle. With domestic demand still supportive, some moderation may be seen in sectors such as real estate, automobiles and consumer durables, but a significant slowdown is unlikely,” said Ramjoni B, Independent Expert.
“The RBI’s decision to raise the repo rate by 25 basis points is a measured response to the evolving macroeconomic environment. Elevated crude prices, geopolitical uncertainty and tighter global monetary conditions have added to inflationary pressures, even as the Indian economy continues to demonstrate resilience. For NBFCs, higher rates are likely to increase funding costs, making disciplined pricing, a diversified funding mix and prudent underwriting increasingly important,” said Abhimanyu Munjal, MD & CEO, Hero FinCorp.
“The RBI Monetary Policy Committee’s decision to raise the policy repo rate by 25 basis points to 5.5 per cent comes against the backdrop of a sudden resurgence in global uncertainties, volatility in crude oil prices and financial markets, despite resilient but moderating global growth,” said Rajeev Juneja, President, PHDCCI.
“We welcome the RBI’s decision to raise the repo rate by 25 basis points to 5.50 per cent and shift its policy stance from neutral to calibrated tightening. This signals a cautious approach towards maintaining macroeconomic and inflation stability,” said Nirmal K. Minda, President, ASSOCHAM.
–ENDS–
Disclaimer: This article is for informational purposes only and is based on publicly available information. APAC Media is not responsible for investment decisions or losses. Please conduct your own research or consult a financial adviser before investing.
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