RBI hiked the repo rate by 35 bps to 6.25%.

 

• In December 2022 policy, RBI hiked the repo rate by 35 bps to 6.25%. Consequently, the standing deposit facility (SDF) rate stands adjusted to 6%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50%.

RBI's rate hike by 35 bps was a welcome move and a much-needed one too. The central bank has continued to hike the repo rate since May this year to tame stubbornly high inflation. It hiked the policy rate aggressively by 50 bps three times in a row from June to October. So when a much smaller size rate hike is given, it comes as a positive move, indicating that the peak inflation is behind us. So, does that mean is a likelihood of a pause in the repo rate

In December 2022 policy, RBI hiked the repo rate by 35 bps to 6.25%. Consequently, the standing deposit facility (SDF) rate stands adjusted to 6%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50%.

So far in FY23, the central bank has increased the repo rate by 225 bps. The first hike was of 40 bps in May, followed by three consecutive 50 bps rate hikes between June to October, and the latest to be is a 35 bps hike earlier this week for December policy.

In October, CPI inflation moderated to 6.8% from the five-month high of 7.4% in September, due to favourable base effects mitigating the impact of a pick-up in price momentum. Also, food inflation softened.

RBI said, the inflation trajectory going ahead would be shaped by both global and domestic factors.

Sure, inflation has eased but let's not forget RBI has also kept its 'withdrawal of accommodation' stance unchanged -- hinting that the war to bring inflation to the tolerance limit is still not over yet. In fact, RBI also increased its inflation target for Q3FY23 and Q4FY23 slightly to 6.6% and 5.9% respectively compared to the October policy's trajectory of 6.5% and 5.8%. Overall, RBI's inflation target of 6.7% remained unchanged. Going forward, for Q1 of FY24, RBI kept its inflation target unchanged at 5%, however, the central bank expects consumer prices to rise to 5.4% in Q2 of FY24.