The Reserve Bank of India (RBI) on Friday raised the benchmark lending rate by 50 basis points (bps) to 5.90 per cent. The rate hike is aimed at checking inflation, which has remained above the central bank’s tolerance level for the past eight months. 

With the latest hike, the Repo Rate or the short-term lending rate at which banks borrow from the central bank is now close to 6 per cent. 

This is the fourth consecutive rate hike after a 40 bps increase in May and 50 bps hike each in June and August. In all, the RBI has raised the benchmark rate by 1.9 per cent since May this year. 

The six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das decided in favour of the rate hike. 

The Consumer Price Index (CPI)-based inflation, which the RBI factors in while fixing its benchmark rate, stood at 7 per cent in August. Retail inflation has been ruling above the RBI’s comfort level of 6 per cent since January. 

Mr Das retained the inflation projection at 6.70 per cent for the current financial year while slashing real GDP growth estimate to 7 per cent from the earlier forecast of 7.20 per cent for FY23. 

The latest RBI action follows the US Federal Reserve effecting the third consecutive 0.75 percentage points interest rate increase, taking its benchmark rate to a range of 3-3.25 per cent earlier this month.