The policy repo rate was increased by the Reserve Bank of India (RBI) on Wednesday, by 35 basis points, to 6.25%. This is the sixth consecutive increase in RBI Monetary Policy. The benchmark interest rate has been increased by a total of 190 basis points; since June, it has been raised three times by 50 basis points, and once, at an off-cycle meeting in May, it has been raised by 40 basis points. After seeing that inflation has been over its specified tolerances for several time, the central bank decided to update the RBI monetary policy and raise the rates.
RBI Monetary Policy on Inflation
Governor Shaktikanta Das, who was presenting the announcements of the RBI Monetary Policy Committee (MPC), also said that the real GDP prediction for the fiscal year 2023 had been reduced to 6.8%. This is 0.1% lower than the updated estimates that the World Bank issued on Tuesday. In addition, the Reserve Bank of India (RBI) has kept its projection for inflation based on the consumer price index (CPI) for the fiscal year of 2023 at 6.7%, and Das said that he expects inflation to reduce when the winter crop is collected.
Indian Economy: Asia’s Fastest Growing Economy
The Governor of the Reserve Bank of India (RBI) praised the performance of the Indian economy in the face of global challenges such as the conflict in Ukraine and the pandemic caused by the COVID-19 virus, and he emphasized that the Indian economy is the one that is growing the quickest in Asia this year.
What is Repo Rate & How It Controls Inflation?
The interest at which the Reserve Bank of India (RBI) lends money to commercial banks is known as the repo rate. Repurchase Agreement or Repurchasing Option is an acronym for Repo. The Reserve Bank of India (RBI) provides loans to financial institutions in exchange for certain assets. To repurchase the securities at a certain price, the RBI or central bank and the commercial bank would negotiate. This is done at times of high market volatility or when banks are experiencing a shortage of capital. The RBI uses the repo rate to keep inflation under control.
Banks that borrow funds from the central bank at this time will have to pay a higher interest rate, or “repo rate,” to do so. This discourages banks from taking on new borrowing, which lowers the money supply and mitigates inflation. Repo rates tend to drop as well in times of economic downturn.
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