RBI raises repo rate by 25 basis points to 6.5%

New Delhi: The Reserve Bank of India raised the repo rate by 25 basis points to 6.5 per cent on Wednesday.

RBI's monetary policy committe(MPC) decided to remain focused on withdrawal of accommodative policy with a 4:2 vote, RBI Governor Shaktikanta Das said.

This is the sixth time interest rate has been hiked by the Reserve Bank of India (RBI) since May last year, taking the total quantum of hike to 250 basis points.

Repo rate is the rate at which the RBI lends money to commercial banks. Repo rate is used by monetary authorities to control inflation. Increase in the repo rate means the cost of funds for banks will go up. In other words, this will disincentives banks from borrowing from the central bank. 

This will reduce the money supply in the economy and arrest inflation.

Repo and reverse repo are part of RBI's liquidity adjustment facilities.

The Governor pointed out that Indian economy remains resilient amid the global developments.

He added that the world economy does not look so grim now, inflation coming down.

However, weak global demand, current economic environment would be a drag on domestic growth.

Inflation  

The governor said the inflation will moderate in the next fiscal but remain above the 4 per cent level. The RBI is mandated to keep inflation at 4 per cent with a margin of 2 per cent on either side.

Core inflation, which generally refers to inflation in manufactured goods, remains sticky.

The RBI expects retail inflation to average 5.6 pc in Q4. The core inflation remains sticky, Das said.

For the next fiscal, the RBI projected a growth rate of 6.4 per cent. In the latest Economic Survey of the finance ministry, growth projection was 6-6.8 per cent for 2023-24.

According to Das, the retail inflation will average 6.5 per cent in the current fiscal and moderate to 5.3 per cent in 2023-24.

(With PTI inputs.)