RBI Hikes Key Lending Rate

Loans Set To Get Costlier!

On Wednesday, The Reserve Bank of India (RBI) raised its key interest rate by 50 basis points, taking the repo rate to 4.9 percent, and raised its inflation projection for the current fiscal to 6.7 percent, well above the upper end of its target range of 2-6 percent.

All the six members of the Monetary Policy Committee (MPC), headed by the RBI Governor, unanimously voted for the latest rate hike.

If broader market predictions are anything to go by, then the central bank is expected to hike rates again at its August meeting, taking the repo rate to above the pre-pandemic level of 5.50 per cent.

Consumer Price Index (CPI) based inflation, which RBI factors in while arriving at its monetary policy, galloped for the seventh straight month to touch an 8-year high of 7.79 percent in April.

The central bank raised its inflation projection for the current fiscal year to 6.7 percent, from 5.7 percent predicted in April.

"Inflation likely to remain above 6 percent in first three quarters of current fiscal," said the RBI Governor. "Our steps will be calibrated, focussed on bringing down inflation to a target level," he added.

Previously, reflecting growing uncertainties, the RBI had raised its retail inflation forecast for the current fiscal year FY23 to 5.7 percent, 120 basis points (4.5 percent) above its forecast in February, and cut its economic growth forecast to 7.2 per cent for 2022-23 from 7.8 per cent earlier.