RBI Spikes Repo Rate by 35 Basis Points to 6.25% and Lowers GDP Forecast to 6.8%

December 07, 2022

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Lately, on December 7, 2022, the Monetary Policy Committee of the Reserve Bank of India (RBI) surprised everyone with the announcement of another repo rate hike by 35 basis points to 6.25% with the mandate of immediate effect. After this fifth repo rate 2022 hike, the RBI policy has reached its highest in the past five years. In September 2022, RBI spiked the repo rate by 50 basis points, making it clock at 5.90%.

The spike in the repo rate was anticipated before the beginning of the meeting. It is the Central Bank’s effort to rein in raging inflation, which has been above the 6% threshold for ten consecutive months starting from January 2022. The Monetary Policy Committee (MPC) approved the rate increase, which RBI Governor Shaktikanta Das led.

Inflation measured by the Consumer Price Index (CPI), which the Reserve Bank of India takes into account when determining its benchmark rate, clocked at 6.7% in October. Since January, retail inflation has surpassed the RBI’s comfortable range of 6%. The RBI Governor kept the current fiscal year’s inflation prediction at 6.7%.

In the RBI Monetary Policy Meet, Das added that the RBI expects GDP to rise at a 6.8% annual rate during the current fiscal year (FY23). The growth was less than the one earlier anticipated by the RBI, i.e. 7%.

In the recent bimonthly policy review, which was published in September, an economic growth forecast was made. Due to ongoing geopolitical unrest and aggressive global monetary policy tightening, the RBI cut its current economic growth forecast from 7.2% to 7% for the current fiscal year.

While announcing the most recent bi-monthly monetary policy, Das added, despite the downward revision to the economic growth prediction, India will continue to be one of the world’s fastest-growing major economies. He claimed that the Indian economy is still strong and will stand as a beacon in a dark world.

It should be emphasised that the RBI also reduced its growth forecast for September. The World Bank increased its GDP growth prediction for India from its previous estimate of 6.5 per cent to 6.9 per cent for 2022–2023 on December 6, citing the country’s economy’s increased resilience to global shocks.

RBI Repo Rate 2022 for December Month

As per the latest update, the current RBI Monetary Policy Repo Rate is:

Specifics Percentage
RBI Repo Rate 5.90 Percent 
Bank Rate 6.15 Percent 
RBI Reverse Repo Rate 3.35 Percent 
Marginal Standing Facility Rate 6.15 Percent 

Repo Rate Hike Trends in FY 2022-23

To understand the repo rate hike trends in 2022, go through the following table:

Date of Mandate  RBI Repo Rate Percentage of Change
September 30, 2022 5.90 Percent 0.5 Percent
August 5, 2022 5.40 Percent 0.5 Percent
June 8, 2022 4.90 Percent 0.5 Percent
May 2022 4.40 Percent 0.4 Percent

Current Reverse Repo Rate 2022 

The current reverse repo rate in 2022 is 3.35%. The rate clocked at 3.35% after the September 2022 announcement, creating a significant difference of 40%.

Reverse Repo Rate 2022 Trends 

Month of Effectiveness  RBI Reverse Repo Rate Percentage Change
September 2022 3.35 Percent 0.40 Percent
May 2022 3.75 Percent 0.40 Percent
April 2022 3.35 Percent NIL

Key Reason Behind Repo Rate Hike

The Reserve Bank of India does not alter the Repo Rate under any circumstance. High inflation is one of the many factors that influence repo rate fluctuation. The principal aim during an inflationary period is to reduce the amount of money flowing into the economy. The most effective way to do this is by raising the repo rate. The increase in the repo rate makes it more expensive for firms and sectors to borrow money. Additionally, it halts market-wide investment and money supply.

Aftereffects of Repo Rate Surge in December 2022

Even a tiny shift in the basis points, or BSP, in the repo rate has a significant effect. The greater influence can be seen in the country’s economic activity, inflation, liquidity, and credit availability. The economy can either prosper or suffer from even the slightest shift in the country’s financial ecosystem. In times of inflation, the RBI must drag down the country’s economy to achieve critical stabilisation.

The surge in RBI Repo Rate for December month can create the below-depicted impacts: 

  • Significant impact on inflation and the economy of the country. 
  • Increased bank loan rates, including mortgages, automobile loans, business loans, etc. 
  • Direct impact on deposit rates along with other financial instruments.
Chitra is a stellar writer with over three years of experience writing about banking, financial services and insurance. She enjoys delving deeply into all the nitty-gritty of finance and associated topics that most people would rather avoid. With a master's in Computer Science, Chitra alchemises her analytical and creative prowess to manifest some of the most astounding articles for Urban Money.

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