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Indian Economy remains resilient

February 10, 2023

Indian Economy remains resilient
The Monetary Policy Committee (MPC) of RBI increased the policy rate for the sixth consecutive time on Wednesday, with the latest 0.25 percentage point hike taking the policy rate to 6.5%, a level last seen in January 2019, increasing the burden on home loan customers, who will see their EMIs (equated monthly instalments) increase by as much as 4% in some cases.

The actual increase in the EMIs will be a function of the tenure and the amount of the loan, but the 2.5 percentage point increase in the policy rate (including the latest one) since May 2022 has seen monthly payments on long-term high-value home loans increase by as much as 23-25%.

The hike, which many experts see as the last in the current monetary tightening cycle, will also raise the borrowing cost for corporate borrowers, increasing the cost of capital.

MPC expects GDP growth of 6.4% for 2023-24, which is largely in line with the 6.5% baseline forecast given in the Economic Survey. The inflation situation is expected to improve significantly in the next fiscal year, with headline Consumer Price Index (CPI) expected to fall from 6.5% in 2022-23 to 5.3%. A key factor in the RBI’s inflation forecasts is an expected moderation of crude oil price from $100 per barrel to $95 per barrel, both of which are higher than the current price ($80.8 per barrel on January 7).

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