RBI Repo Rate Hike - Overview
During its September meeting on 30th Friday, the Reserve Bank of India raised its key repo rate by 50 bps to 5.9%. Amid the rising concerns over global headwinds, soaring inflation, and a plunge in rupee to its record lows, this rate hike is the fourth repo rate hike in a row. The decision followed a 50-bps hike made in the month of August, in line with global central banks tightening rates, bringing the rate to level not seen since May 2019.
The Reserve Bank of India maintained its FY 2023 inflation forecast at 6.7% while revised its economic growth lower to 7.0% from 7.2%, with Q2 at 6.3%; Q3 at 4.6%; and Q4 at 4.6% respectively. The central bank RBI also raised the marginal standing facility (MSF) rate and the standing deposit facility (SDF) rate including the bank rate by 50 bps to 5.65% and 6.15, respectively.
Key Takeaways from the MPC Meet September 2022
• The benchmark repo rate hike by 50 bps to 5.9% is the 3-year high
• The economic growth projection estimated 7.2% for FY23 in August cut to 7%
• The expected GDP growth in September is 6.3%, 4.6 % each in December & March quarters
• For the ongoing fiscal year FY23, the inflation projection retained at 6.7%
• For the Indian basket, the average crude oil price expected per barrel is USD 100
• The central bank is confident of financing external sector shortfall
• Bank credit at a fast pace has grown to 16.2%
• Forex reserve this year until September 23 is USD 537.5 billion, down 67%
• The external factors and private consumption picking up has affected Indian economy that has resilient Merchandise exports
• Rupee movement depreciated only 7.4% in the current year until September 28 against US dollar, says RBI
• RBI does not have a fixed exchange rate for rupee
• RBI intervenes in the market with the aim to curb excessive volatility
• World is in the mid of next major surprise by central banks from aggressive monetary tightening
• RBI to keep a check on prices remain focused on withdrawal of accommodative monetary policy stance to check prices
• There can be relief from soaring inflation if the recent global crude oil price correction is sustained
• The next Monetary Policy Committee meeting is scheduled in December.
THE RBI REPO RATE HIKE IN 2022 - AT A GLANCE
Know On Which Dates the RBI Raised its Key Repo Rates in 2022?
• From the above image it is evident that the decision to raise key repo rate by 40 bps to 4.4% by the Reserve Bank of India during an off-cycle meeting on May 4th, 2022, was the first-rate hike since 2018.
• During its June meeting, RBI raised its key repo rate by 50 bps to 4.9% to support growth and make sure going forward inflation remains within the set target.
• The Reserve Bank of India in its August meeting raised its key repo rate by 50 bps to 5.4%. It was the third-rate hike in a row that aimed to bring down inflation.
• The Reserve Bank of India during its September meeting on Friday 30th raised its key repo rate by 50 bps to 5.9%. This fourth-rate hike in a row was in line to the expectation.
RBI since May 2022 has hiked the repo rate for the fourth consecutive policy by 190 basis points. The repo rate today stands at 5.90% and so the banks have made addition in their lending rates.
How can an Investor minimize risks and earn stable returns?
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The decision to increase or decrease in repo rate is taken after taking into consideration several factors, aftereffects, and more. The revision in the repo rate can have both positive and negative impact. For some people, the rise in the repo rate is beneficial while for a few others it is a monetary loss. For instance, the hike in the repo rate results in the EMI increase of the customers who have availed home loans. They would be required to pay more EMIs which may disturb their monthly budget. Bank in this scenario is forced to increase the rate of interest on lending. It results in declining number of customers interested in a fresh loan at the increased interest rate due to hike in the repo rate.
The soaring inflation has become a major concern for the world. The central banks worldwide are forced to take the decision related to raising key repo rates at a short interval with the aim to bring down inflation rate, increase GDP, and economic growth. RBI also recently raised its key repo rate 50 bps to 5.9% in between the rising concerns over global headwinds, soaring inflation, and a plunge in rupee to its record lows.