RBI Hikes Rates – What they said and how to interpret it

RBI, in its monetary policy review, just hiked the repo rate by 50 basis points. How do we interpret this?

Key Points in the RBI Monetary Policy Review

Repo rate hiked by 50 basis points to 5.9%

Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) hiked by 50 basis points each as well, to 5.65% and 6.15% respectively. SDF is the rate at which Banks deposit excess money with RBI. MSF is the rate at which banks borrow beyond the Repo limit from the RBI

– RBI mentioned inflation is expected to remain higher than the medium term target in the first 3 quarters of this year. However, this is keeping an assumption of USD 100 per barrel oil prices for Indian Crude Basket (Note that this has now corrected to below USD 90 per barrel)

– Global uncertainties continue – and while commodity prices have cooled off, we are yet to see a price reduction of end products.

Monsoons have been better than average, and hence the acreage has been also above average. This should keep food inflation in check

– GDP growth projections for FY23 are now at 7%, lower than the earlier projections

The policy was in line with expectations, and there was nothing that was more hawkish than expectations. All in all, in line with global central banks, we had to raise policy rates. However it seems that Indian economy seems to be handling the crisis much better. Consumption data, government tax data, and inflation data suggest the same

As long as commodity prices remain stable, we should see off this storm much better than most other markets

 

YouTube Video

We had done a video explaining the various monetary policy tools a few weeks back. You may find it useful

Recent LinkedIn Post

An infographic that shows where we stand in Travel and Tourism Competitiveness

 

Till next week. Keep Learning!