RBI hikes interest rates by another 50 bps, cuts FY23 GDP forecast to 7%

The Reserve Bank on Friday raised interest rates by another 50 basis points to tame inflation. The latest increase takes interest rates to 5.9%. This is the fourth straight hike by the Central Bank; interest rates have now been raised by a total of 190 basis points since May. The inflation rate in India stood at 7% for August and was above the RBI's 6% upper band target. Inflation has stayed above the Central Bank's objective for eight straight months.

"...persistence of high inflation necessitates further calibrated withdrawal of monetary accommodation to restrain broadening of price pressures, anchor inflation expectations, and contain second-round effects. This action will support the medium-term growth prospects of our economy," Governor Shaktikanta Das said while explaining the rationale behind the increase.

The RBI retained the inflation projection at 6.7% for FY23. Retail inflation is expected to further reduce to 5% in the first quarter of the next financial year 2023-24, Governor said. The recent correction in crude prices if sustained may ease price pressures, he said.

RBI cuts FY23 growth forecast to 7%.

The Reserve Bank cut its growth forecast to 7% for the current financial year 2022-23 from its previous peg of 7.2%. The revision comes against the backdrop of slowing global growth. Governor stressed that despite global headwinds, the Indian economy remains resilient.