Mumbai : As widely expected, the Reserve Bank of India (RBI) on Friday increased the repo rate by 50 basis point to 5.40 per cent in a bid to tame inflation which has been above its comfort level for the past six months in a row.
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 stand revised to 5.65 per cent.
“The MPC (Monetary Policy Committee) also decided to remain focussed on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth,” RBI Governor Shaktikanta Das said while announcing the monetary policy.
The MPC unanimously decided to increase the repo rate.
Repo rate is the interest rate RBI charges commercial banks for borrowing cash. If RBI raises the repo rate, banks will increase its lending rate for its borrowers. So, the interest rates for borrowers will go up. Hence, interest cost for doing business will also go up.
Central banks world over have been grappling with high inflation driven primarily by Russia-Ukraine conflict, supply chain disruptions and high volatility in global crude prices.
In order to check spiralling prices, the RBI has been raising the benchmark lending rate.
Announcing the monetary policy, Governor Das said that successive shocks to the world economy are taking their toll in terms of globalised inflation surges, tightening of financial conditions, sharp appreciation of the US dollar and lower growth across geographies.
“The Indian economy has naturally been impacted by the global economic situation. We have been grappling with the problem of high inflation,” Das said.
He further said that financial markets have remained uneasy despite intermittent corrections.
“We have witnessed large portfolio outflows to the tune of US$13.3 billion during the current financial year so far i.e. till 3rd of August. Nevertheless, with strong resilience and fundamentals India is expected to be amongst the fastest-growing economies during the financial year 2022-23, according to IMF projections,” the Governor said.