RBI hikes repo rate by 50 bps to 5.9% to tame inflation

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Repo is the rate at which the RBI lends short-term funds to banks. 

The Reserve Bank of India (RBI) on Friday (September 30) announced a 50 basis points (bps) hike in the repo rate, in a bid to tame persistently high inflation. With the latest move, the repo rate now stands at 5.9 per cent.

Announcing the decision, RBI Governor Shaktikanta Das spoke about the inflation concerns of the Monetary Policy Committee (MPC). The MPC began its three-day meeting on September 28.

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Repo is the rate at which the RBI lends short-term funds to banks.  It may be noted that the latest 50 bps increase in repo rate is the fourth consecutive one since May. It takes the repo rate  to 5.90 percent – the highest level since April 2019 – from 5.40 percent currently.

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Since May, the MPC has been increasing the policy repo rate by 140 basis points to address inflationary pressure. This is the fourth consecutive rate hike after a 40 basis points increase in May and 50 basis points hike each in June and August. In all, RBI has raised benchmark rate by 1.90 per cent since May this year.

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The Consumer Price Index (CPI) based inflation, which RBI factors in while fixing its benchmark rate, stood at 7 per cent in August. Retail inflation has been ruling above the RBIs comfort level of 6 per cent since January this year.

Das retained the inflation projection at 6.7 per cent for the current fiscal while slashing real GDP growth estimate to 7 per cent from earlier forecast of 7.2 per cent for FY23.

The latest RBI action follows the US Federal Reserve effecting the third consecutive 0.75 percentage point interest rate increase, taking its benchmark rate to a range of 3-3.25 per cent earlier this month.

(With agencies’ inputs)

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