Digital Desk: The Reserve Bank of India raised the repo rate by 35 basis points to 6.25 percent on Wednesday. The RBI Monetary Policy Committee (MPC) voted to hike interest rates in order to bring rising inflation back to its objective of 4%, according to governor Shaktikanta Das. 

The MPC's six-member policy meeting, conducted from December 5 to 7, remained focused on withdrawing accommodation. 

The MPC's rate hike was not unanimous, with 5 of 6 members voting in favour of the increase. The decision on the stance was also not unanimous, with four out of six members choosing to keep it.

The Standing Deposit Facility rate, which represents the interest rate corridor's floor, is currently 35 basis points higher at 6%. The interest rate corridor's upper band, the Marginal Standing Facility rate, has also been raised by 35 basis points to 6.50 percent. 

The rate hike was in line with market expectations; a Business Standard poll of ten respondents projected a 35 basis point increase. The repo rate is currently at its highest level since February 2019. So far, the MPC has lifted the repo rate by 225 basis points in 2022.

The 10-year benchmark bond yield was last at 7.29 percent, four basis points higher than the previous close. Bond prices and rates move in opposite directions. Bond traders claimed the first weakness was due to Das's repeated concerns over prolonged and sticky core inflation. 

The rupee was recently trading at 82.62 per US dollar, unchanged from the previous close.

Das stated that the MPC had maintained its current fiscal year inflation projection of 6.7%. The MPC, on the other hand, has made minor upward changes to its inflation predictions for the current and future quarters. CPI inflation is expected to be 6.6% in October-December, up from 6.5 percent previously forecast. In January-March, headline retail inflation is expected to be 5.9 percent, up from 5.8 percent previously projected.

The MPC has kept its inflation projection for the first quarter of the next fiscal year at 5%, while the price gauge is expected to be 5.4% in the second quarter, according to Das. 

While predicting that Consumer Pricing Index-based inflation will likely decline in the future, Das emphasised the persistence of price pressures and the stickiness of core inflation, which excludes the volatile components of food and fuel. 

"The medium-term inflation target is vulnerable to increased uncertainty... 

"More calibrated monetary policy action is required to stabilise inflation expectations, break the core inflation persistence, and contain second-round consequences," Das added.

Das repeatedly emphasised the significance of lowering excessive core inflation, calling it the "primary danger" at the present. While food inflation is expected to drop in the coming months, he noted that prices for cereals, milk, and spices remained high. 

"Overall CPI pricing momentum is still strong," he remarked. 

For several months, consumer price index-based inflation has been elevated due to supply-side interruptions induced by the Covid-19 epidemic and a jump in global commodity prices following Russia's invasion of Ukraine in late February.

For ten months in a row, CPI inflation has been above the upper band of the MPC's tolerance range of 2-6 percent. The price index, which was at 6.77 percent in October, has maintained over 4% for 37 consecutive months. Core inflation hovered at 6%.

The RBI governor also revealed a little decrease in GDP growth prediction for the current fiscal year to 6.8 percent from 7.8 percent previously. While the growth prediction had been cut, he stated that India would still be among the fastest-growing global economies. 

GDP growth in October-December is now expected to be 4.4%, up from 4.6% previously, while growth in January-March is expected to be 4.2%, up from 4.6% previously, with risks broadly balanced, according to Das.

GDP growth is expected to be 7.1% in the first quarter of the 2019 fiscal year, down from the MPC's prior forecast of 7.2 percent. GDP growth is expected to be 5.9 percent in the second quarter of the next fiscal year. 

Das claimed that frequent data in the current quarter indicated that economic activity was strengthening. He noted increased discretionary expenditure, passenger vehicle sales, and rural demand recovery, as indicated by robust tractor and two-wheeler sales.