RBI's Monetary Policy Committee Raises Repo Rate by 25 bps

The Reserve Bank of India (RBI) Governor Shaktikanta Das announced the Monetary Policy statement on Wednesday, February 8, 2023, increasing the repo rate by 25 basis points.

The Monetary Policy Committee (MPC) increased the repo rate, or the key rate at which the RBI lends short-term funds to commercial banks, to 6.50 per cent from 6.25 per cent. 

In its December monetary policy review, the central bank had raised the key benchmark interest rate by 35 basis points (bps). Since May last year, the Reserve Bank has increased the short-term lending rate by 225 basis points to contain inflation.

Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund.

“The MPC hiked policy rates by 25 bps on expected lines with a 4-2 majority while keeping the monetary policy stance unchanged at “withdrawal of accommodation.” The 25 bps hike was on expected lines though the market was slightly disappointed with no change in the stance as some sections of the market were expecting the stance to change to “Neutral”. The MPC and the RBI Governor’s statement expressed concern on sticky “Core Inflation.” In our view, apart from the domestic inflation trajectory, RBI actions will continue to be influenced by the actions of Global Central banks, especially the US Fed. Going ahead, Indian Bond markets will be keenly watching the evolution of RBI’s management of domestic liquidity. We would recommend investors should increase their investments in Short Duration products, while selectively looking at Dynamic Bond Fund category as per their risk appetite.”

Mahendra Jajoo, cio, fixed income , Mirae Asset Investment Managers

" RBI hiked repo rate by 25 bps to 6.5%, as was the market consensus. While there is marginal reduction in near term inflation projection, FY24 inflation estimate still remains well above 5%. Thus, the guidance continues to be one of continued vigil and caution. A marginal upgrade in growth forecast bodes well on economy front. While the uncertainties remain, incoming data suggests further moderation in inflation in coming months. As such, Market expects policy rates to be on pause from next policy onwards. While the 10Y govt bond yields ticked up by 3-4 bls as an immediate reaction, they are expected to largely remain range bound in current band of 7.20-7.40 for the time being. Short term rates are likely to move higher in line with adjustment in policy rates."

Mr. Dinanath Dubhashi,Managing Director & CEO, L&T Finance Holdings Ltd.

"Today's Monetary Policy action will realign and re-price both the deposit and lending rates, which will support growth by enhancing domestic savings. Reserve Bank of India's growth confidence is very encouraging and has sent positive signals about the Indian Economy amid turbulent global environment."

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