• The Reserve Bank of India hiked repo rate by 25 basis points to 6.5 per cent.

• Repo rate, which is also known as the benchmark interest rate, is the rate at which the RBI lends money to the banks for a short term. Reverse repo rate is the borrowing rate at which RBI borrows money from banks for a short term.

• This is the sixth time interest rate has been hiked by the RBI since May last year, taking the total quantum of hike to 250 basis points.

• Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) by a majority decided to raise the policy repo rate by 25 basis points .

• The MPC was of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored, break the persistence of core inflation and thereby strengthen the medium-term growth prospects. 

• Core inflation generally refers to inflation in manufactured goods.

• The MPC will continue to maintain strong vigil on the evolving inflation outlook so as to ensure that it remains within the tolerance band and progressively aligns with the target.

• For the next fiscal, the RBI projected a growth rate of 6.4 per cent. In the latest Economic Survey of the finance ministry, growth projection was 6-6.8 per cent for 2023-24.

Assessment of global economy

• The outlook on global growth has improved in recent months, despite the persistence of geopolitical hostilities and the impact of monetary policy tightening by central banks across the world. 

• Nonetheless, global growth is expected to decelerate during 2023. Inflation is exhibiting some softening from elevated levels, prompting central banks to moderate the size and pace of rate actions. 

• However, central banks are reiterating their commitment to bring down inflation close to their targets. Bond yields remain volatile. 

• Weak external demand in major advanced economies (AEs), the rising incidence of protectionist policies, volatile capital flows and debt distress could, however, weigh adversely on prospects for emerging market economies (EMEs).

Assessment of domestic economy

• Amidst volatile global developments, the Indian economy remains resilient. Real GDP growth is estimated at 7 per cent in 2022-23, according to the first advance estimate of the National Statistical Office (NSO). 

• Higher Rabi acreage, sustained urban demand, improving rural demand, robust credit expansion, gains in consumer and business optimism and the government’s enhanced thrust on capital expenditure and infrastructure in the Union Budget 2023-24 should support economic activity in the coming year. 

• Weak external demand and the uncertain global environment, however, would be a drag on domestic growth prospects.

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