Economy

The Monetary Policy Committee (MPC) today stepped up its inflation flight, with its members unanimously voting for an increase in the policy repo rate by 50 basis points.

·       The MPC move comes a little over a month after the six- member Committee unanimously voted for a 40 basis points hike in the repo rate in an off cycle meeting on May 4.

·       Current repo rate and inflation projections: Following the latest hike, the repo rate is now 4.9 per cent up from 4.4 per cent.

·       This will make bank loans (retail and MSME) linked to the external benchmark rates such as the repo rate dearer.

·      Reserve Bank of India revised its retail inflation projection for FY23 sharply upwards to 6.7 per cent (assuming a normal monsoon and average crude oil price — Indian basket — of $105

·       Liquidity stanching:Along with the increase in the repo rate, the MPC also de-cided unanimously to remain focussed on withdrawal of accommodation stance to ensure that in nation remains within the target (of 4 per cent within a band of +/- 2 per cent) going forward, even while supporting growth.

·       SDF, MSF rates up: Following the 50 basis points hike in repo rate, the standing deposit facility (SDF) rate has moved up to 4.65 per cent (4.15 per cent earlier); and the marginal standing facility (MSF) rate to 5.15 per cent (4.65 per cent).

·       Under SDF, banks can park surplus liquidity with the RBI, overnight or for longer tenors.

·       Under the MSF, banks can get funds from the RBI on overnight basis against their excess statutory liquidity ratio (government securities and state development loans) holdings.

·       To ease pressure on rupee the policy tightening is also warranted to reduce the pressure on the rupee from widening the Current Account Deficit (CAD) and stem foreign portfolio outflows.

·      Retains GDP growth the central bank retained real GDP growth for 2022-23 at 7.2 per cent.