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RBI Maintains “Withdrawal of Accommodation” While Raising The Repo Rate by 25 Basis Points to 6.5%

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RBI Maintains "Withdrawal of Accommodation" While Raising The Repo Rate by 25 Basis Points to 6.5%

On Wednesday, the Reserve Bank of India declared a rise in the repo rate of 25 basis points to 6.5 percent. Governor of the RBI Shaktikanta Das made the announcement. The MPC voted with a 4 out of 6 majorities. The Indian economy is steadfast despite erratic global trends, Das added.

Keep your attention on the termination of accommodation. Unprecedented economic activity reductions and a rise in global inflation presented challenges to monetary policy, he claimed. On the global “fault lines” that have been developing over the past few years, Das continued, there is an urgent need to strengthen international cooperation.

The move by the RBI to raise the rate was consistent with expectations, according to Dinesh Khara, chairman of SBI. For central banks in emerging nations, maintaining monetary policy has become a delicate balancing act due to the Fed’s consistently good job numbers. A variety of policies are in place to support the market’s microstructure in addition to the rate increase.

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He added that the idea of solving the problem of penal fees for services will result in legislation that is based on rules. The measures on climate-related risks will enhance bank financial disclosure forms, financing decisions, and compliance. Giving the TReDS platform more push will increase depth and support price discovery across markets by allowing for additional activity enhancement and facilitating lending activities of government securities.

The Committee’s Decisions on Repo Rate Hike and Their Outcomes in Past Scenarios

The Governor revealed the outcome of the six-member rate-setting panel’s conclusion on Wednesday. Experts predicted that the reserve bank might very well only choose to raise the benchmark interest rate by 25 basis points because of the predicted slowing economy in GDP growth in the upcoming fiscal year beginning in April, retail inflation’s signs of moderation, and the fact that it is still below the RBI’s 6% upper tolerance level.

Another viewpoint was that the RBI might decide to stop the rate increase on its own. As headline inflation finally fell under the central bank’s tolerance band of 2%-6% in the final two months of 2022, it was anticipated that the RBI would hike rates by 25 basis points (bps), marking the final rise in its present tightening phase, and then halt for the remainder of the year.

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The Monetary Policy Committee (MPC), led by RBI Governor Shaktikanta Das, began its three-day meeting on Monday amid anticipation of a modest 25 basis point rate increase or a halt to the rate hike spree that began in May last year to control inflation.

The RBI is responsible for making sure that retail inflation stays at 4% with a margin of 2%. However, starting in January 2022, it was unable to maintain the rate of inflation below 6% for three straight quarters.

Members of the Monetary Policy Committee

Three representatives from the RBI and three outsiders chosen by the federal government make up the MPC. Rajiv Ranjan, an Executive Director at RBI, and Michael Debabrata Patra (Deputy Governor) are the other members of the panel, in addition to the Governor.

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Subhashree Panda: A proficient content writer, editor, and researcher. With 4 years of experience and an MBA in finance, she crafts compelling narratives on global events. Her passion for diverse journalism genres resonates widely, fostering broad audience connections.

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