On expected lines the Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) increased the policy rate by 35 basis points in its December meeting to 6.25%. There are couple of factors that need to be considered to understand the rationale for smaller quantum i.e. less than 50 basis points of rate hike in this policy. One, domestic retail inflation seems to have peaked out with October inflation came lower at 6.8% year on year compared to 7.4% in September. Secondly, US Fed has given clear indication that its pace of rate hikes will slow going forward. However, the RBI Governor was categorical in his statement that battle against inflation is not over yet as core inflation remains sticky at higher level and domestic food inflation remains exposed to international factors and weather.
December 7, 2022