RBI Policy: Shaktikanta Das delivers 6th back-to-back rate hike; inflation, GDP projections tweaked

RBI Governor Shaktikanta Das on Wednesday announced a hike of 25 basis points in the repo rate, the key interest rate at which it lends money to commercial banks, to 6.5 per cent, in line with economsits' expectations. This is its sixth back-to-back increase in the key lending rate in the current cycle of monetary tightening. 

The RBI policy review comes at a time when major central banks have the Herculean task of controlling red-hot inflation without damaging economic growth amid fears of at least a mild recession.  

Here are a few key things to know about the February 8 policy statement:

1. The RBI Governor-led Monetary Policy Committee — the central bank's rate-deciding panel — voted 4:2 to increase the rate as well as continue with its current policy stance of "withdrawal of accommodation". 

2. Inflation outlook: The RBI lowered its consumer inflation projection for the year ending March 2023 to 6.5 per cent from 6.7 per cent, assuming crude oil to average at $95 a barrel, and for the quarter ending March 2023 to 5.7 per cent from 5.9 per cent. The rise in consumer prices returned to the RBI's comfort zone in November and December last year after 10-odd months. The central bank targets to keep inflation within two per cent of four per cent on either side. 

It pegged inflation in the next year at 5.3 per cent. 

3. The RBI expects commodity prices to to face upward pressure with the easing of COVID-related mobility restrictions in parts of the world. "The ongoing pass-through of input costs to output prices, especially in services, could continue to exert pressures on core inflation," according to the policy statement. 

4. Growth outlook: The RBI forecast the country's real GDP to grow 6.4 per cent in the year ending March 2024, with 7.8 per cent in the first quarter, 6.2 per cent in second, six per cent in third and 5.8 per cent in the final three months of the year, citing 'evenly balanced" risks.​

For the quarter ending June 2023, the RBI projected GDP growth of 7.8 per cent, higher than its earlier estimate of 7.1 per cent. 

5. Das said the Indian economy remains resilient amid volatile global developments. He pointed out that the RBI expects higher rabi acreage, sustained urban demand, improving rural demand, robust credit expansion, gains in consumer and business optimism, and the government’s enhanced thrust on capex and infrastructure in Budget 2023 to aid economic activity in the coming year, though weak external demand and an uncertain global environment will be a drag. 

6. Most economists welcomed the outcome of the latest MPC review. "The rate hike was in line wirh expectations. However, the market was expecting an explicit statement suggesting a pause, which has not happened. This suggests a tug of war between growth and inflation continues. While chances of pause still remain, the uncertainty may persist," said Lakshmi Iyer, CEO-Investment Advisory at Kotak Investment Advisors.

7. Dalal Street held on to the green after the RBI policy announcements though interest rate-sensitive stocks remained a mixed bag. (Catch stock market updates)

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8. The RBI chief said there is surplus liquidity in the system.

9. The rupee remains one of the least volatile currencies among its Asian peers, reflecting the resilience of the economy "in a fundamental sense", Das said. The depreciation and volatility in the rupee in the current phase of multiple shocks is far lower compared with the periods of the global financial crisis and the taper tantrum, he said. (Check out the full text of Shaktikanta Das's RBI policy speech) 

10. Minutes of the February 6-8 meeting will be released on February 22. The next bi-monthly review of the MPC is scheduled from April 3 to April 6. 

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