RBI hikes repo rate by 35 bps to 6.25%; Inflation forecast unchanged

Mumbai, Dec 07: The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on Wednesday for the fifth time in a row, by 35 bps to 6.25 per cent with immediate effect. The move is expected to lead to further increase in loan rates as well as small hikes in fixed deposit interest rates.

Addressing a press conference, RBI Governor Shaktikanta Das said,''Indian corporates are healthier than before. Indian economy remains resilient. Our inflation remains elevated as in most part of the world. Ukraine war has fundamentally changed the world economic outlook. Emerging countries have been among the worst affected.''

Das retained the inflation projection at 6.7 per cent for the current fiscal.

The RBI has slashed its GDP growth forecast to 6.8 per cent from an earlier estimate of 7 per cent for the current fiscal.

With the latest hike, the repo rate or the short-term lending rate at which banks borrow from the central bank now has crossed 6 per cent. This is the fifth consecutive rate hike after a 40 basis points increase in May and 50 basis points hike each in June, August and September. In all, the RBI has raised the benchmark rate by 2.25 per cent since May this year.

RBI had slashed the repo rate in March, 2020 with an aim to cushion the impact of covid-induced lockdown, and maintained status-quo in the benchmark interest rate for almost two years before increasing it on May 4, 2022.

Since May, MPC has hiked interest rate by 190 basis points - (100 basis points equals 1 per cent) in an attempt to tackle inflation.

In its last bi-monthly policy review released in September, the RBI had slashed the economic growth projection for the current financial year to 7 per cent from 7.2 per cent earlier on account of extended geopolitical tensions and aggressive monetary policy tightening globally.

The repo rate are rates at which the country's central bank lends money to commercial banks in the country. This is likely to increase interest rates for loans and deposits.