The Reserve Bank of India raised the benchmark interest rate by 35 basis points, bringing the total increase since May to 225 basis points. Although lenders asserted that this would not affect demand for new loans, borrowers who took out loans in April 2022 when interest rates were at an all-time low may suffer because lenders may request an increase in the monthly instalment amount (EMI) to ensure that the interest expense is covered.
The RBI governor Shaktikanta Das lowered the growth forecast for the current year to 6. 8% from 7% earlier and retained inflation projections at 6. 7%. Das said that despite this India would be among the fastest-growing economies in the world.
The worst of the inflation situation was past, but the war still needed to be won, Das said when announcing the rate increase. Given that inflation is predicted to be below 6% in 2019, many believe this to be the RBI's penultimate rate increase.
The Monetary Policy Committee (MPC) voted 5:1 to increase the repo rate by 35 basis points, with external member Jayanth Varma being the sole dissenter. In addition, Varma and his coworker Ashima Goyal abstained from the MPC's decision to remove excess liquidity from the markets. Despite the 35-basis point hike being shorter than the four prior rises, Das insisted that there was no space for complacency."We stand out as an island of resilience in an otherwise volatile and gloomy world," he said. The moderation in the rate hike was factored in by the money markets and the yield on 10-year bonds rose marginally from 7. 25% to 7. 27%. The rupee, however, settled marginally higher at 82. 47 against the dollar.
The RBI cut its GDP growth forecast for 2022-23, citing accentuated headwinds from protracted geopolitical tensions, tightening global financial conditions and slowing external demand but retained the estimate for inflation for the year.
“Taking all these factors into consideration, the real GDP growth for 2022-23 is projected at 6. 8%, with Q3 at 4. 4% and Q4 at 4. 2%, with risks evenly balanced. Real GDP growth is projected at 7. 1% for Q1FY24 and at 5. 9% for Q2,” the RBI said in its monetary policy statement. It had earlier estimated the economy to grow at 7%.
