The Reserve Bank of India (RBI) on Friday raised the benchmark lending rate by 50 basis points to 5.90 percent in a bid to check inflation, which has remained above its tolerance level for the past 8 months.
With the latest hike, the repo rate, or the short-term lending rate at which banks borrow from the central bank is now close to 6 percent.
This is the fourth consecutive rate hike after a 40 basis points increase in May and a 50 basis point hike each in June and August. In all, RBI has raised the benchmark rate by 1.90 percent since May this year.
The six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das decided in favor of the rate hike.
The Consumer Price Index (CPI) based inflation, which RBI factors in while fixing its benchmark rate, stood at 7 percent in August. Retail inflation has been ruling above the RBI’s comfort level of 6 percent since January this year.
Das retained the inflation projection at 6.7 percent for the current fiscal while slashing the real GDP growth estimate to 7 percent from the earlier forecast of 7.2 percent for FY’23.
The latest RBI action follows the US Federal Reserve affecting the third consecutive 0.75 percentage point interest rate increase, taking its benchmark rate to a range of 3-3.25 percent earlier this month.