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RBI Hikes Repo Rate By 50 Bps To 5.40% In Its Third Hike In 4 Months

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Mumbai: The Reserve Bank of India’s (RBI) Governor Shaktikanta Das has announced that the Monetary Policy Committee (MPC) has decided to increase the repo rate by 50 bps to 5.40% with immediate effect.

In simple words, the repo rate is the interest charged by the Reserve Bank of India when commercial banks sell their securities to the central bank and borrow from them. Since May, the central bank has hiked the benchmark rate by 1.40 per cent.

“Real GDP growth for 2022-23 is projected at 7.2%, with Q1 at 16.2%,” the governor announced.

This is the third consecutive hike in the repo rate by the country’s central bank in as many months. “The Indian economy is battling high inflation,” the governor said.

Das, however, said the country’s financial sector is well capitalized and the country’s foreign exchange reserves provide insurance against ‘global spillovers’. ”

The IMF has revised downwards its economic growth forecast and expressed the risk of a recession,” he said.

The RBI governor also said that there is a possibility of further softening in edible oil prices.

Consumer price index (CPI)-based inflation, which the RBI factors into while setting its benchmark rate, stood at 7.01 per cent in June. Retail inflation has been running above the RBI’s comfort level of 6 per cent since January this year.

Inflation based on the Wholesale Price Index (WPI) remained in double digits for 15 consecutive months. The WPI reading stood at 15.18 per cent in June.

The latest RBI action comes after the Bank of England raised the rate by 50 basis points to 1.75 per cent, the biggest increase in 27 years.

Last month, the US Federal Reserve effected its second consecutive 0.75 percentage point interest rate increase, taking its benchmark rate to a range of 2.25-2.5 per cent.

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