Highlights:
- The policy repo rate has been increased by 35 basis points (bps) to 6.25 percent with immediate effect by the RBI monetary policy committee (MPC).
- A three-day session that ended on December 7 resulted in the adoption of this decision.
- In October, retail inflation was 6.77 percent as opposed to 7.41 percent in September.
The Repo Rate was raised by 35 basis points (bps) to 6.25 percent on Wednesday by the RBI Monetary Policy Committee (MPC), which is headed over by Governor Shaktikanta Das. As a result, borrowing rates for both businesses and individuals would rise even more.
In order to cover its costs when lending money to commercial banks, the Reserve Bank of India charges a repo rate. The central bank uses it as a tool to manage inflation. In an effort to reduce inflationary pressure, this is the fifth increase since the start of the current financial year, returning the rate to pre-pandemic levels.
On Tuesday, the six-member Monetary Policy Committee, which is chaired over by Governor of the Reserve Bank of India Shaktikanta Das, began discussing the bimonthly policy review.
To reduce domestic retail inflation, which has been above the RBI’s upper tolerance limit for more than three quarters, the central bank had already increased the key policy rate by 190 basis points since May to 5.9%. Compared to September, when retail inflation was 7.41 percent, October’s rate was 6.77 percent.
If CPI-based inflation exceeds the 2-6% range for three consecutive quarters, the RBI is considered to have failed in managing price increases under the flexible inflation targeting framework implemented in 2016. Early in November, the Reserve Bank of India’s Monetary Policy Committee (MPC) convened an unscheduled meeting to discuss and compose the report that would be given to the central government for failing to uphold the inflation mandate.
The Reserve Bank of India (RBI) Act 1934’s Section 45ZN, which deals with what happens if the central bank fails to fulfil its mandate to target inflation, was cited to call the meeting.
