The Reserve Bank of India (RBI) on Wednesday raised the Repo Rate — or the rate at which the central bank lends money to commercial banks or financial institutions — by 25 basis points to 6.5 per cent. 

The bank was expected to sign off 2023 by making a small increase since retail inflation had finally come within its tolerance band of 2 to 6 per cent in the last two months of 2022. But Governor Shaktikanta Das had warned on Tuesday that core inflation still remained high. 

The RBI had raised the key lending rate by 35 basis points (bps) in December, after three straight 50 bps hikes, and said its fight against inflation was not over yet. 

Mr Das said on Tuesday that the Indian economy remained resilient amid “volatile global developments”. But he also said that core inflation remained sticky and that weak global demand and the current economic environment could be a drag on domestic growth. “The stickiness of core or underlying inflation is a matter of concern. We need to see a decisive moderation in inflation,” he said. 

Mr Das said that the recently-concluded meeting of its Monetary Policy Committee (MPC) — responsible for fixing the benchmark interest rate — decided by a 4:2 vote to remain focused on withdrawal of the accommodative policy. 

The committee, comprising three members from the central bank and three external members, raised the key lending rate in a split decision. 

Mr Das projected GDP growth of 6.4 per cent for 2023-24; a reduced retail inflation of 6.5 per cent for 2022-23; and 5.3 per cent for the next financial year. For the fourth quarter of this financial year, Mr Das expected retail inflation to average at 5.6 per cent.