RBI hikes interest rates in India to the highest in four years

In its first monetary policy review after the Union Budget 2023, the Reserve Bank of India (RBI) decided to raise the policy repo rate by 25 basis points by a majority and keep a 'strong vigil' on the inflation outlook. The three-day meeting of the Monetary Policy Committee (MPC) started on Monday and the rate hikes were announced on Wednesday, February 8.

This is the sixth time the interest rate has been hiked by the RBI since May last year, taking the total quantum of the hike to 250 basis points. "Policy rate at 6.5 percent still trails the pre-pandemic level," Das said, adding that core inflation will remain sticky. Core inflation generally refers to inflation in manufactured goods.

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The governor said the inflation will moderate in the next fiscal year but remain above the 4 percent level. The RBI is mandated to keep inflation at 4 percent with a margin of 2 percent on either side.

Das added that inflation is likely to be 5.6 percent in fourth quarter.

The RBI governor also announced that the Indian central bank will keep its policy stance maintained at "withdrawal of accommodation".

© Provided by CNBCTV18

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A CNBC-TV18 poll of economists had predicted that with inflation softening and the US Federal Reserve moderating the pace of its hikes, a rate hike of 25 basis points with 30 percent voting for a status quo policy was likely.

The central bank, in its December monetary policy review, had raised the benchmark interest rate by 35 bps after delivering three back-to-back 50 bps hikes. India’s inflation based on the consumer price index dropped to a 12-month low of 5.72 percent in December from 5.88 percent a month ago. Although the headline inflation has cooled off, core inflation remains sticky.

Catch all the latest updates on the RBI's monetary policy here

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