MUMBAI: The Reserve Bank of India's key repo rate was raised by 35 basis points (bps) on Wednesday, the fifth consecutive increase, with the central bank vowing that it will not relent in its fight to contain high inflation.
In a majority decision, the monetary policy committee (MPC), comprised of three RBI members and three external members, raised the key lending rate or repo rate (INREPO=ECI) to 6.25%. The increase was approved by five of the six members.
A strong two-thirds majority of analysts polled by Reuters predicted a 35 basis point increase, less than the central bank's previous three hikes of 50 basis points each, and said it was still too soon for the central bank to shift its focus away from inflation, which has remained above the RBI's 2-6% tolerance band all year.
Annual retail inflation in India fell to a three-month low of 6.77% in October, helped by a slower rise in food prices and a higher base effect, strengthening bets on the RBI raising interest rates more slowly in the future.
Nonetheless, despite some signs of easing, RBI Governor Shaktikanta Das stated that the main risk was that inflation would remain sticky and high.
"The MPC believed that further calibrated monetary policy action was warranted to anchor inflation expectations, breakcore inflation persistence, and contain second-round effects," Das said in announcing the monetary policy committee's decision.
"The focus on inflation control continues. There will be no let up in our efforts to bring inflation to more manageable levels," he added.
Investors expect at least one more rate hike in the current cycle at the next meeting.
The standing deposit facility rate and the marginal standing facility rate were also increased by the same quantum to 6.00%and 6.50%, respectively.
The MPC also maintained its stance on "withdrawal of accommodation", with four out of six members voting in favour as the committee continues to focus on pulling out high levels of cash from the banking system without stunting growth.
The MPC lowered its GDP growth projection for financial year 2022/23 to 6.8% from 7% earlier, while its retail inflation forecast was held steady at 6.7%.
"Growth in India remains resilient in the international environment. A 6.8% growth (rate) is robust," Das said.
India posted annual economic growth of 6.3% in its July-September quarter, slightly better than expected but less than half the 13.5% growth in the previous three months as distortions caused by COVID-19 lockdowns faded in Asia's third-largest economy.
Following the policy decision and comments on inflation, the Indian rupee fell against the dollar, while government bond yields rose.
The rupee was trading at 82.64, down from 82.53 prior to the decision, while the benchmark bond yield rose to 7.2985%, the highest in two weeks and up from 7.2113% previously.
The Nifty 50 index gained 0.09%, while the S&P BSE Sensex gained 0.16%.
Source: Reuters