Another 50 bps Hike by RBI. What’s Next?

Another 50 bps Hike by RBI. What’s Next?

The three-day monetary policy committee meeting has ended, and another 50bps hike is the recent outcome. Here’s a quick rundown on the updates.

What’s Happening?

The 50 bps hike was no surprise. Everyone saw it coming. After all, the RBI governor, Mr Shaktikanta Das, mentioned in the previous MPC press releases that a 50 bps hike is the new normal for central banks.

Including this rate hike, the MPC has hiked the repo rate – at which the RBI offers short-term loans to banks – by 190 bps in the current rate hike cycle.

This rate hike was the fourth rate hike of the financial year. But why did the committee consider a fourth rate hike? Simply to quell the sky-high inflation! 

Apart from the rate hike, there were a few more key takeaways. 

Key Takeaways From The MPC’s Press Release

In this MPC press release, Mr Shaktikanta Das mentioned a shock and a storm hitting the economy. The shock was the COVID-19 pandemic and the Russia-Ukraine conflict. The storm is arising from aggressive rate hikes by the global central banks.

A Few Rates Have Readjusted:

  • The RBI’s MPC hiked repo rates by 50 basis points to 5.9%.
  • The Standing Deposit Facility (SDF) stands adjusted at 5.65% from 5.15%. It is a way through which the RBI absorbs excess liquidity from commercial banks without giving government securities in return.
  • The real GDP forecast for FY23 is 7%.
  • RBI leaves the inflation projection for FY23 unchanged at 6.7% on upside risks to food prices.
  • The growth of Q2FY23 is forecasted at 6.3%, and Q3FY23 and Q4FY23 are forecasted at 4.6%.
  • India’s Forex reserves stand at $537.5 billion. The governor also said there had been a 67% decline in reserves due to valuation changes arising from an appreciating dollar and higher bond yields.

Apart from this, the governor mentioned that the inflation trajectory remains uncertain. 

What’s Next?

The US Fed’s consecutive rate hikes and a strong dollar pressure the emerging economies. Also, the rising repo rate is a threat for home buyers as the banks will increase their lending rates too. 

Mr Anuj Puri, the chairman of a leading real estate services company – ANAROCK Group, said, ‘With this repo rate hike, home loans will get dearer soon. This could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments’. 

Currently, the central bank aims to maintain stability somehow and tame inflation. But, a sharp rate hike might also hurt the economy by slaughtering demand. 

That’s it for today.

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