RBI hikes repo rate by 35 bps, maintains withdrawal of accommodation stance

“Based on an assessment of the macroeconomic situation and its outlook, the MPC decided by a majority of 5 members out of 6 to increase the policy repo rate by 35 basis points to 6.25%,” said the RBI statement. “The MPC also decided by a majority of 4 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth,” it added.

“The quantum of the rate hike was on expected lines. However, the tone of the meeting was slightly hawkish than what the markets were expecting,” said Ritika Chhabra, Economist and Quant Analyst, Prabhudas Lilladher.

Meanwhile, RBI lowered its GDP growth forecast for 2022-23 to 6.8%; for Q1 2023-24, RBI’s projection stands at 7.1% and 5.9% for Q2. The RBI Governor said that despite the revision, India will be among the fastest growing economies in the world.

Inflation for 2022-23 has been projected at 6.7%. And CPI inflation for the first quarter of 2023-24 is expected to be at 5% and for Q2 at 5.4%, according to RBI estimates.

Going ahead, experts see another rate hike in February 2023.

“We expect another 25 bps rate hike in the next MPC meeting, provided no upside risks to global inflation materialize,” said Chhabra.

“Amid the outlook for continued robust growth, and as global commodity prices, especially crude oil recedes, we believe CPI inflation is set to moderate into the RBI target range soon, but given the RBI’s emphasis on pushing towards lowering core CPI inflation and pushing headline down towards 4%, we now expect a further 25bp hike in February taking the repo rate to 6.50%,” said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays.