India’s Central Bank Boosts Repo Rate by 25bps and Opens for More Tightening

The Reserve Bank of India (RBI) increased the main repo rate by a quarter percentage point as expected on Wednesday but surprised the market by leaving the door open for more tightening, while saying that the core inflation remained high.

Analysts expected the increase on Wednesday would be the last hike of the RBI’s current tightening cycle, which has seen a rise of 250 bps since May last year.

Shaktikanta Das, RBI Governor said that the stickiness of core inflation is a matter of concern and needs to see decisive inflation at moderate rate. The central bank would need to maintain its determination to bring down inflation.

In a poll conducted ahead on February 1, the economists 40 of 52 expected that RBI would increase the repo rate by 25 bps.

Das also said the adjusted inflation, the real inflation rate was below the level before the pandemic and liquidity was still a surplus.

More central banks around the world are sending a signal to pause the rigidity in recent weeks after consumer inflation went out of the boiling point as the economy’s growth is likely to soften.

India’s retail inflation rate declined to 5.72% in December from 5.88% last month. Consumer inflation was forecast to be at 6.5% in the fiscal year 2023 and 5.3% for 2024.

India’s economy remained resilient even though the global community’s prices were uncertain.

The RBI expected a growth rate of 6.4% for fiscal year 2024.

Global’s economic outlook was not as bad as it was a few months ago. The major economies had progressive growth, inflation was on the way down, and although still above the major economies’ target, the situation remains uncertain, according to Das.