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