India Central Bank Raises Rate By 50 Bps

India’s central bank raised its key interest rate by a steeper-than-expected 50 basis points on Friday as inflation is set to remain above the target through much of the current fiscal year.

The Monetary Policy Committee unanimously decided to hike its key interest rate, the repo, by 50 basis points to 5.40 percent from 4.90 percent. Markets had forecast a 35 basis point hike.

Consequently, the standing deposit facility rate was adjusted to 5.15 percent and the marginal standing facility rate and the Bank Rate to 5.65 percent.

The bank had earlier raised the repo rate by 50 basis points in June and a surprise 40 basis point hike in May.

The MPC today decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

The committee said inflation is set to remain above the upper tolerance level of 6 percent through the first three quarters of 2022-23. The inflation projection was retained at 6.7 percent.

Policymakers observed that elevated risks emanating from protracted geopolitical tensions, the upsurge in global financial market volatility and tightening global financial conditions continue to weigh heavily on the outlook. GDP growth outlook for 2022-23 was maintained at 7.2 percent.

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