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The RBI takes the policy repo rate above the pre-pandemic level with a second successive 50 bps rate hike

  • 5 Aug 2022
  • Post Views: 4096

The RBI raised its policy repo rate by 50 bps to 5.4% amid continued elevated inflationary pressures and resilient economic recovery. Pressures on the Indian Rupee have also likely influenced the central bank’s policy decision. The RBI maintained its stance of “focus on withdrawal of accommodation” despite the recent moderation in liquidity conditions. The RBI also retained its FY23 inflation and real GDP growth projections at 6.7% and 7.2%, respectively. Given persisting inflationary pressures, we continue to believe that the terminal rate in the current hiking cycle will be around 6%. With inflation seen to be softening to 5% by Q1 FY24 (by the RBI), real interest rates could turn positive by the start of the next financial year.