Ashish Ranjan
RBI increases Repo Rate: In an effort to curb retail inflation, the Monetary Policy Committee (MPC) of the RBI increases Repo rate or the rate at which the RBI loans funds to banks by 25 basis points to 6.50 percent on Wednesday. The RBI’s decision is anticipated to immediately increase the cost of all external benchmark-linked (Repo rate-based) loans.
The RBI has also projected a GDP growth rate of 6.4% for the upcoming fiscal year. The MPC predicts that retail inflation will reach 5.3% in 2019-20.
Was the rate increase decision unanimous?
With MPC members Ashima Goyal and Jayanth R. Varma voting against the increase, the RBI’s policy panel voted by a majority of 4 to 2 to raise the Repo rate, the sixth time since May 2022.
The Monetary Policy Committee (MPC) reaffirmed, by a majority vote of 4 to 2, its position on the withdrawal of monetary accommodation to ensure that inflation remains within the target range in the future, while supporting economic growth. Goyal and Varma also voted against the accommodation withdrawal.
What will be the consequences?
Bank lending rates are anticipated to increase as the cost of money continues to climb. Auto, mortgage, and personal loan monthly payments will also increase. As these loans are linked to the Repo rate, the external benchmark linked lending rate (EBLR) of banks will increase by 25 basis points (bps). A basis point is equal to one-hundredth of a percentage point. Approximately 43.6% of all loans are now linked to the Repo rate.
The marginal cost of funds-based lending rates (MCLR), which comprise 49.2 percent of banks’ loan portfolios, are also anticipated to increase. The increase will help to moderate the country’s inflation.
The hike till now
Since May of this year, the RBI has lifted the repo rate by a total of 250 basis points to 6.50 percent.
In an effort to curb retail inflation, the MPC increased the Repo rate by 35 basis points in December 2022. The MPC increased the repo rate by 40 basis points in May and by 50 basis points at each of its next three meetings.A basis point is equivalent to one-hundredth of a percentage point.
Growth projection
The RBI has projected a GDP growth rate of 6.4% for the following fiscal year (FY2024). In the December policy review, the MPC reduced its GDP forecast for fiscal 2023 from 7% to 6.8% due to persistent geopolitical tensions, a global economic slowdown, and tighter global financial conditions.
Response of the market
At 10:55 IST, the benchmark Sensex was trading 261 points, or 0.43 percent, higher at 60,547.32 while the NSE Nifty was trading 96 points higher at 17,817.
“The market is aware of this (increase) and it is unlikely to have a significant influence on the market. According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the most influential global market factors are the evolution of the US economy and the Fed’s monetary policy.
Also Read:- PM Modi Special Jacket Made From Recycled Plastic Bottles | Why so special?
Tuesday’s statements by Federal Reserve chairman Jerome Powell were favourably received by the market. His remark that “the disinflationary process would take some time” is interpreted as confirmation of the ongoing disinflationary process.
“Also, the fact that the disinflationary process is proceeding even when the economy is creating a record number of jobs is considered as beneficial. “The unabated FII selling — Rs 7,774 crore in the last three sessions – is currently the market’s largest drag,” he said.
