The Reserve Bank of India (RBI) has hiked the repo rate by 25 basis points, taking it to 6.50%. This is the sixth consecutive time that the central bank has increased the key benchmark rate. 

With the new increase, the RBI has hiked the short-term lending rate by 225 points since May last year to contain inflation which accelerated after war broke out in Ukraine.

The RBI’s rate-setting panel opted to increase the repo rate on Wednesday with a 4:2 majority. This is the last meeting of the monetary policy committee (MPC) in this financial year.

The repo rate is the rate at which the RBI lends to the banks. 

The RBI has pegged retail inflation at 6.5% for the ongoing fiscal while GDP growth for FY24 is seen at 6.4%.

Key policy highlights:

>After the repo rate hike, the standing deposit facility (SDF) rate stands adjusted to 6.25% and the marginal standing facility (MSF) rate and the Bank Rate to 6.75%

>The MPC with a 4:2 majority decided to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth

>Gross domestic product (GDP) is expected to grow at 6.4% during 2023-24 with Q1 growth rate at 7.8%, Q2-6.2%, Q3 at 6% and Q4 at 5.8% and the risks are evenly balanced

> Retail inflation for FY23 is forecast at 6.5% (from 6.7%) and for Q4 at 5.7%. RBI estimates retail inflation for FY24 at 5.3% with Q1 at 5%, Q2 at 5.4%, Q3 at 5.4% and Q4 at 5.6%

> RBI announces measures to improve cashflows of MSMEs. The scope of the Trade Receivables Discounting System (TReDS) is proposed to be expanded. Some changes include the provision of an insurance facility for invoice financing, and permitting rediscounting of invoices

> The RBI has proposed to permit all inbound travellers to India to use UPI for their merchant payments (P2M) while in India

> A pilot project on QR Code-based Coin Vending Machine will be launched across 12 cities, which will dispense coins against debit to the customer’s account using UPI instead of physical tendering of banknotes

> The market hours for the Government Securities market have been restored to the pre-pandemic timing of 9 am to 5 pm

> The next meeting of the MPC is scheduled for April 3, 5 and 6, 2023.