RBI MPC hikes lending rate by 35 bps in-line with market expectation

As expected by the market, the RBI Governor Shaktikanta Das-headed MPC has decided to opt for a lower rate increase of 35 basis points (bps) in lending rates. This will take the repo rate to 6.25 percent and the decision was taken with five out of six members in agreement. With this hike, the lending rate is at its highest since August 2018.

The committee has also decided to keep its stance unchanged and keep the focus on fighting inflation. Governor Das said so, in so many words, "Our first target is to bring back inflation to below six percent."

"The MPC decided by a 4:2 majority to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth," he said.

The MPC has also decided to adjust the SDF (standing deposit facility) rate

to six percent from the current 5.65 percent. The main purpose of SDF is to reduce the excess liquidity in the system. This helps in controlling inflation.

Similarly, the MSF (Marginal Standing Facility) and bank rates have been adjusted to 6.5 percent from 6.15 percent.

The RBI Governor has left the door open for another rate hike in this financial year. Economists who spoke to CNBC-TV18 also reckoned that a 25 bps rate hike in the February policy is probable.

Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank echoed this and added, "Just to point out in February, they will have two more readings, which will definitely be anchoring around 6.3 to 6.5 percent, which still itself will be quite discomforting. It's only in the April policy when they will probably be comforted (by the inflation reading)."

"The governor again highlighted the stickiness of core inflation and the risk that sustained high inflation could unmoor inflation expectations and lead to second-round effects in the medium term, said Emkay Global's, Madhavi Arora.