RBI Monetary Policy live updates: Repo rate hiked by 50 bps to 4.90%

RBI MPC Meet LIVE Updates: The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Wednesday hiked the repo rate by 50 basis points (bps) to 4.90 per cent, RBI Governor Shaktikanta Das announced.

The move comes barely a month after the central bank in a surprise off-cycle meeting had jacked up the repo rate, the main policy rate, by 40 basis points to 4.40 per cent to bring down the elevated inflation and tackle the impact of geopolitical tensions. Last month, Das in an interview with CNBC-TV18 had indicated that the central bank would continue to hike policy interest rates to bring down inflation but refused to say whether it will be raised to the pre-pandemic level.

In his speech today, Das said that the MPC vote was unanimous. Additionally, he said the standing deposit facility (SDF) rate stands adjusted to 4.65 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 5.15 per cent. He noted that the repo rate remains below the pre-pandemic level.

Das said that the MPC voted unanimously to remain focused on the withdrawal of accommodation to ensure inflation remains within target going ahead.

The central bank governor said that the Indian economy remains resilient and added that the RBI will remain supportive of growth. He added that RBI’s steps will be calibrated, and focused on bringing down inflation to the target level.

Speaking on the inflation, Shaktikanta Das said that the inflation is likely to remain above 6 per cent in the first three-quarters of the current fiscal. He added that the upside risk to inflation persists. A recent spike in tomato and crude prices fuelling inflation. The RBI raised its inflation forecast for the financial year 2022-23 (FY23) to 6.7 per cent from its earlier estimate of 5.7 per cent.

“With the assumption of a normal monsoon, in 2022 and average crude oil price in the Indian basket of 105 dollars per barrel, inflation is now projected at 6.7 per cent in 2022-23,” Das said.

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On the demand front, he said that while the urban demand is improving, rural demand gradually recovering.

Speaking on growth, RBI retained its growth projection at 7.2 per cent for the current fiscal. Das said the Indian economy remained resilient, and the central bank will continue to support growth.

The RBI expects growth in the first quarter of the current fiscal at 16.2 per cent, which will taper to 4 per cent by the fourth quarter. He, however, cautioned that there are risks from the ongoing Russia-Ukraine war.

How economists and market experts reacted:

Ramani Sastri, Chairman and MD at Sterling Developers said, “We have observed a robust comeback in residential sales and launches in the last couple of quarters. From a real estate perspective, this hike in the policy rate comes as a hurdle as home loan rates will increase, putting a dent on the homebuyer’s sentiments. Any increase in the interest rate will further impact the costs of doing business and hence the move will hurt business sentiment too as the economy is still recovering from the pandemic. However there has been a fundamental change in buyers expectations and attitude towards homeownership and this will largely withstand marginal fluctuations in lending rates. It also goes without saying that the real estate industry’s perennial hope is fixed on lower interest rates as it improves affordability. There is still pent-up demand and even after the repo rate hike, affordability is still high and the home buyer needs to take advantage of that in the short term.”

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Lincoln Bennet Rodrigues, Chairman and Founder at The Bennet and Bernard Company said, “The current round of hikes could make the buyers apprehensive and they might as well adopt a wait and watch attitude. But on a positive note, the continued wage and job growth in varied sectors will provide a cushion in the short term for the purchasing decisions. The all-time low home loan interest regime in the recent past had boosted the housing demand and also enabled a robust recovery in the real estate sector post the pandemic. Today, people feel the inherent need to make progressive lifestyle changes to lead a more balanced and healthy life. We are hopeful that an improved homebuyer attitude and preference for owning a house will support the housing market and we expect that consumer demand will remain buoyant in the near term. The rate hike won’t have significant impact as home loan interest rates have already gone down substantially in the recent past and buying decisions may not be altered by these marginal changes.”

Pradeep Multani, President at PHD Chamber said, “Hard lending from an accommodative policy stance is disappointing as it will have an impact on costs of doing business and production possibilities. Though RBI’s decision to raise the repo rate by 50 bps to 4.9% is in synchrony with its efforts to tackle persistently heightened inflation, however it will impact India’s economic growth due to dampened demand scenario and discouraged consumer and business sentiments. Any increase in the interest rate increases the costs of doing business, which are already high vis-a-vis high raw material costs amid geo-political distress”

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, “RBI’s projections of GDP growth rate of 7.2% and inflation of 6.7% for FY23 reflect a realistic monetary policy. The higher inflation projection indicates that the central bank recognises the seriousness of inflation and the 50 bp repo rate hike is a message that they are determined to anchor inflation expectations. The Governor’s remark that ” the economy remains resilient and recovery has gathered momentum” is bullish from the market perspective. The bond market’s positive response with bond yields rising stems from the absence of CRR hike”

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