At the ending of the monetary policy committee's three-day meeting on June 8, the Reserve Bank of India (RBI) raised the repo rate by 50 basis points, the second increase in five weeks. The move came as no surprise, as multiple polls, including a Moneycontrol poll of 15 economists, predicted a 40 basis point increase. Previously, the monetary policy committee (MPC) met unexpectedly in early May and unanimously voted for a 40 basis point repo rate hike in anticipation of a significant increase in April inflation. The repo rate is the rate at which the RBI lends banks short-term funds.
According to the most recent RBI forecast, released in April, headline retail inflation will average 6.3 percent in April-June, 5.8 percent in July-September, 5.4 percent in October-December, and 5.1 percent in January-March 2023.
The MPC also decided to maintain its focus on withdrawing accommodation provided to support the COVID-19-affected economy in order to ensure that inflation remains within the target going forward while supporting growth, said RBI Governor Shaktikanta Das while announcing the rate hike.
"Inflation has accelerated far beyond the upper tolerance level." A significant portion of the rise in inflation can be attributed to a series of supply shocks related to the war [in Ukraine]. Under these conditions, we have begun a gradual and orderly withdrawal of the extraordinary accommodation instituted during the pandemic," Mr. Das explained.
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