As expected by the market, the RBI Governor Shaktikanta Das-headed Monetary Policy Committee (MPC) decided to opt for a lower rate increase of 35 basis points (bps) in lending rates. The lending rate, also called the repo rate, now stands at 6.25 percent. 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 silver lining is that the last three hikes were of 50 bps each and so a 35 bps hike shows a slowdown in the rate hike cycle. This can be interpreted as the first signs of the economy hit by high inflation starting to stabilise. Inflation still remains high but has plateaued with economists expecting the first few months of 2023 to reflect this.
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."
In a press briefing after the policy announcement, the MPC members explained the decisions in the policy. CNBC-TV18's Latha Venkatesh asked the MPC members about the core inflation rate, which has worried economists.
Das agreed that in the last six-seven months core inflation has remained sticky.
Earlier, while announcing the policy, Das had stressed the need to bring inflation under the mandated six percent and then gradually work towards moving it to the ideal four percent level.
The governor also spoke about RBI's pilot for retail e-rupee, its version of the central bank digital currency (CBDC), that was launched on December 1.
CBDC is a sovereign currency in an electronic form and will appear as a liability (currency in circulation) on a central bank's balance sheet.
“The amendment in the RBI act, with regard to the CBDC says that currency will also include digital currency. Therefore, there is no difference in the eyes of law, there is no difference in the treatment between paper currency and a digital currency,” Das mentioned.
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(Edited by : Abhishek Jha)
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