HIKE IN REPO RATE

Description

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Context

The Reserve Bank of India's Monetary Policy Committee has raised the Repo rate by 35 bps to 6.25% in its continued bid to curb the spiralling inflation. RBI has now hiked the repo rate, or the short-term lending rate at which banks borrow from the central bank, by 225 basis points since May 2022.

Key Takeaways

The MPC decided by a majority of 5 members out of 6 to increase the policy repo rate by 35 basis points.
The standing deposit facility (SDF) rate stands adjusted to 6.00%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50%.
The MPC also decided by a majority of 4 out of 6 members to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.
The governor highlighted that core inflation is exhibiting stickiness. While headline inflation may ease through the rest of the year and Q1FY24, it is expected to rule above the target.
System liquidity remains in surplus with an average daily absorption under the liquidity adjustment facility (LAF) of ₹1.6 lakh crore in November 2022. Since then, it has gone up to ₹2.6 lakh crore as on December 5.
The size of India's forex reserves is comfortable. It has gone up from US$524.5 billion on October 21, 2022 to US$561.2 billion as on December 2, 2022 covering around nine months of projected imports for FY23.
The Governor said that India's net balance under services and remittances remains in large surplus, partly offsetting the trade deficit.
In a bid to further enhance the capabilities in UPI, the RBI is introducing single-block-and-multiple-debits functionality. The facility will enable a customer to block funds in his/her account for specific purposes, which can be debited whenever needed.
Expanding the scope of the Bharat Bill Payment System (BBPS), it will now include all categories of payments and collections, both recurring and non-recurring, and for all categories of billers (businesses and individuals).
Resident entities will now be permitted to hedge their gold price risk on recognised exchanges in the IFSC. "This measure will benefit importers/exporters of gold such as jewellers and industries which use gold as an intermediate or raw material.