RBI Governor Shaktikanta Das on June 8 announced that the central bank has raised the repo rate, at which banks borrow from the central bank, by 50 bps to 4.90%. The monetary policy committee’s decision was unanimous and it has decided to keep the stance “withdrawal from accommodative“. 

Consequently, the standing deposit facility (SDF) rate is adjusted to 4.65% and the marginal standing facility (MSF) rate and the Bank Rate to 5.15%. These decisions are in accordance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% with a margin of 2% on either side, while supporting growth.

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“Inflation has steeply increased much beyond the tolerance level. The process of recovery in emerging market economies is also getting affected. But the Indian economy has remained resilient. We have started a gradual withdrawal of the extraordinary accommodation. The RBI will continue to be proactive and decisive in mitigating the fallout of the geopolitical crises on our economy. Our steps will be measured and calibrated,” said Das.

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‘The ongoing war turning out to be a dampener on global trade and growth. Domestic economic activity is gaining traction while inflation pressures have intensified. Inflationary pressures have become broad-based and remain largely driven by supply shocks. The Repo rate remains below its pre-pandemic level. Inflation is likely to remain near the upper tolerance of 6% for the first three quarters of this year. Sustained high inflation could unhinge inflation expectations”, he added.

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“Information for April-May suggests domestic economic recovery is firm. Urban demand is recovering, rural demand is also improving. Surveys show capacity utilisation in the manufacturing sector increased to 74.5% in January-March,” Das said.