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RBI raises repo rate by 50 bps to 5.9% to control inflation

The RBI move is in line with the global trends of tightening monetary policy adopted by central banks.

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Mumbai: On expected lines, the Reserve Bank of India (RBI) on Friday raised the repo rate by 50 basis points (bps) to 5.9 per cent in a bid to contain inflation which has been above its comfort level for the past many months.

Repo rate is the interest rate RBI charges commercial banks for borrowing cash. If RBI raises the repo rate, banks will increase their lending rate for borrowers. This means loan EMIs for consumers would go up.

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The RBI move is in line with the global trends of tightening monetary policy adopted by central banks.

“Based on an assessment of the macro economic situation and its outlook, the MPC (Monetary Policy Committee) decided by a majority of five members out of six to increase the policy repo rate by 50 basis points to 5.9 per cent with immediate effect,” RBI Governor Shaktikanta Das while announcing the monetary policy.

Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.65 per cent and the marginal standing facility (MSF) and bank rate to 6.15 per cent.

The MPC also decided by a majority five out of six members to remain focussed on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.

Amid global headwinds posing risks to economic growth, the RBI has lowered the gross domestic product (GDP) growth estimate to 7 per cent for the current financial year from 7.2 per cent earlier.

“The headwinds from extended geo-political tensions, tightening global financial conditions and possible decline in the external component of aggregate demand can pose downside risks to growth. Taking all these factors into consideration, real GDP growth for the current financial year 2022-23 is now projected at 7 per cent with Q2 at 6.3 per cent, Q3 at 4.6 per cent and Q4 at 4.6 per cent with risks broadly balanced,” RBI Governor Das said.

The central bank retained the consumer price index (CPI)-based inflation projection at 6.7 per cent for the current financial year.

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