RBI lowers its projected GDP growth to 6.8% while raising the repo rate by 35 basis points to 6.25%.

The Reserve Bank of India raised its benchmark lending rate to 6.25 percent, an increase of only 35 basis points. With this most recent increase, the RBI’s rate-setting council has increased the repo rate by a total of 225 basis points this year to combat inflation.

On Wednesday, the Monetary Policy Committee of the RBI increased the repo rate by 35 basis points (bps), bringing it to 6.25 percent with immediate effect. The policy rate has now risen to its highest level since August 2018. The Reserve Bank of India is still adhering to its “removal of accommodation” strategy.

The central bank also reduced its estimate of GDP growth to 4.4% for the period of October through December 2022. The prediction for GDP growth for the fiscal year 2023 has also been revised downward, from 7% to 6.8% for January 2023 through March 2023.

The monetary policy committee (MPC), which is made up of three members from the RBI and three outside members, hiked the key lending rate, also known as the repo rate, by 0.35% to 6.25% with a five out of six majority.

The repo rate has increased for the sixth consecutive year this year. The RBI’s rate-setting panel has raised the benchmark policy rate by 225 basis points overall this year to battle inflation with the most recent rise. The repo rate is the interest rate at which the RBI lends money to commercial banks.

The MPC’s majority position was to change its accommodative stance because inflation is still high and there are fresh concerns about the state of the economy, according to RBI Governor Shaktikanta Das. Indian banks are expected to immediately pass on the most recent RBI rate increase to customers, increasing loan costs and corresponding monthly payments, as they have in previous months (EMIs).

In its most recent bimonthly policy review, which was released in September, the RBI reduced its economic growth prediction for the current fiscal year from 7.2% to 7.4% due to persistent geopolitical turmoil and aggressive global monetary policy tightening.