RBI hikes Repo rate by 35 bps to 6.25%, lowers GDP growth projection to 6.8%

The Reserve Bank of India hiked its key lending rate by a more modest 35 basis points to 6.25 per cent. With this latest hike, the RBI's rate-setting panel has raised the repo rate by 225 basis points this year in total, in order to control inflation.

The RBI’s Monetary Policy Committee on Wednesday raised the repo rate by 35 basis points (bps) to 6.25 per cent with immediate effect, making loans expensive. Since August 2018, the policy rate has now reached its highest point. The Reserve Bank of India has continued its policy of "removal of accommodation."

The central bank also lowered GDP growth forecast for October-December 2022 to 4.4%. Meanwhile, GDP growth forecast for January-March 2023 lowered to 4.2% and GDP growth forecast for FY23 lowered to 6.8% from 7%.

The key lending rate, commonly known as the repo rate, was increased by 0.35% to 6.25% by the monetary policy committee (MPC), which consists of three members from the RBI and three outside members, with a five out of six majority.

This year's increase in the repo rate is the fifth in a row. With this most recent increase, the RBI's rate-setting panel has increased the key policy rate by a total of 225 basis points this year to combat inflation. The interest rate at which the RBI loans money to commercial banks is known as the repo rate.

According to RBI Governor Shaktikanta Das, the MPC's majority position was to reverse its accommodating posture because inflation is still high and there are new worries about the economy's development. Like in prior months, Indian banks are anticipated to promptly pass on the most recent RBI rate increase to clients, increasing lending costs and equated monthly payments (EMIs).

Due to ongoing geopolitical unrest and aggressive global monetary policy tightening, the RBI cut its economic growth forecast for the current fiscal year from 7.2% to 7.4% in its most recent bimonthly policy review, which was published in September.