RBI raises rates, vows nimble policy

• The Monetary Policy Committee (MPC) of the Reserve Bank of India unanimously decided to raise the policy repo rate by 50 basis points (bps) to 5.4%.

Rationale for this decision:

• Inflation is projected to remain above the upper tolerance level of 6% through the first three quarters of 2022-23, entailing the risk of destabilising inflation expectations and triggering second round effects.
• Given the elevated level of inflation and resilience in domestic economic activity, further calibrated monetary policy action is needed to:
• Contain inflationary pressures,
• Pull back headline inflation within the tolerance band closer to the target,
• Keep inflation expectations anchored so as to ensure that growth is sustained.
• The MPC also said it would remain focused on “withdrawal of accommodation” to ensure that inflation remains within the target, while supporting growth.
• The RBI retained its inflation and GDP growth projections for the current fiscal year ending in March 2023 at 6.7% and 7.2%, respectively.

Prelims Take Away

• RBI MPC
• Qualitative and Quantitative Tools