The decision to raise the repo rate was taken by the Monetary Policy Committee (MPC) of the RBI at its meeting today on the basis of an assessment of the current and evolving macroeconomic situation.
The MPC also decided to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
The decisions of the MPC are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, the Monetary Policy Statement said.
As regard the outlook for domestic economic activity, “the forecast of a normal southwest monsoon brightens the prospects for kharif production. The recovery in contact-intensive services is expected to be sustained, with the ebbing of the third wave and the growing vaccination coverage. Investment activity should get an uplift from robust government capex, improving capacity utilisation, stronger corporate balance sheets and congenial financial conditions,” the statement said.
On the other hand, the worsening external environment, elevated commodity prices and persistent supply bottlenecks pose formidable headwinds, along with volatility spill overs from monetary policy normalisation in advanced economies, the statement added.
“On balance, the Indian economy appears capable of weathering the deterioration in geopolitical conditions but it is prudent to continuously monitor the balance of risks,” RBI said.
ALCHEMPro News Desk (RKS)
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