RBI MPC: Repo rate increased by 50 bps to 5.40%; accommodative stance withdrawn

Reserve Bank of India Governor Shaktikanta Das stated on Friday during the Monetary Policy Committee announcements that the repo rate will be increased by 50 basis points to 5.40 per cent. In the last meeting on June 8, the RBI increased repo rate by 50 basis points to 4.90 per cent. 

The MPC decided to focus on withdrawal of accommodation to ensure that inflation remains within the target going forward. 

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“On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (August 5, 2022) decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.40 per cent with immediate effect. Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.15 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent,” the RBI stated. 

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“The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth. These decisions are in consonance with the objective of achieving the medium term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” stated the apex bank.

This increase in repo rate comes as expected by experts and economists. An increase in repo rate means that loans including home, personal, car, education, would get expensive. 

Also read: RBI MPC retains GDP projection at 7.2% for FY23

The RBI increased repo rate as inflation remains high, which is above the upper tolerance level of 6 per cent. 

Adhil Shetty, CEO, Bankbazaar.com told Business Today, "The global geopolitical situation and the elevated commodity prices indicate that inflation will likely remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23. The RBI may announce a hike of 30-50 basis points in its monetary policy meeting this week to pacify the rising inflation.”

According to a Reuters poll, most economists they spoke to predicted an increase of 50 bps, while some argued for 35 bps, and some 25 bps. 

Also read: RBI projects inflation at 6.7% for FY23; GDP growth at 7.2% 

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