RBI: Monetary Policy Committee Hikes Policy Rate By 35 BPS To 6.25%

The Reserve Bank of India monetary policy committee (MPC), which determines interest rates, has raised policy repo rate by 35 basis points (bps) to 6.25 per cent with immediate effect 

Mumbai: The Reserve Bank of India monetary policy committee (MPC), which determines interest rates, has raised policy repo rate by 35 basis points (bps) to 6.25 per cent with immediate effect. This decision was taken after three-day-long sessions that concluded on December 7.

RBI Governor Shaktikanta Das today announced that five out of six members of the MPC opted to go for a hike in the rate during the meeting. The MPC’s hike in repo rate, the rate at which the RBI lends money to all commercial banks, is the fifth consecutive hike by the central bank, following a hike in October, 40 bps hike in May, 50 bps hike each in June, August and September.

The central bank had been hiking the key policy rate since May to 6.25 per cent to cool off domestic retail inflation that has stayed above the RBI’s upper tolerance limit for over three quarters now. In October, retail inflation was 6.77 per cent as against 7.41 per cent the previous month.

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Under the flexible inflation targeting framework introduced in 2016, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.
An out-of-turn meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India was held in early November to discuss and draft the report to be sent to the central government for having failed in maintaining the inflation mandate.

The meeting was called under Section 45ZN of the RBI Act 1934, which pertains to steps to be taken if the central bank fails to meet its inflation-targeting mandate.

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