The RBI announced a 25 basis points increase in the repo rate to 6.5% today, with the decision made by a 4 out of 6 majority on the Monetary Policy Committee (MPC). Despite volatile global developments, the Indian economy remains robust.
The rate hike, which was in line with market expectations, surprised some who felt there was a possibility of a rate pause given the recent softening of inflation in India. However, the RBI was more concerned about high and persistent core inflation and the impact of rate hikes by other major central banks on the foreign exchange market.
Barring any unexpected rise in inflation, the RBI is expected to maintain its current policy rate for the rest of 2023, which would benefit both the debt and equity markets. The peak of the rate cycle is believed to be near, and the central bank is expected to start easing rates in the next calendar year, as long as inflation remains under control.
The 25 basis points hike is seen as a measure to protect the rupee from further depreciation, control import-driven inflation, and promote sustainable growth at a rate of 6.5% or higher. As a result of this announcement, home loans are expected to become more expensive.
