RBI increases key lending rate by 35 bps Cuts FY23 GDP Growth Projection to 6.8%

Context:

The Monetary Policy Committee (MPC) of RBI increased key interest rates by 35 basis points.

More about news:

The Reserve Bank of India (RBI) on Wednesday raised the benchmark lending rate by 35 basis points (bps) to 6.25%, the fifth increase since May.
Consequently, the standing deposit facility (SDF) rate is adjusted to 6% and the marginal standing facility (MSF) rate and Bank rate to 6.50%.
It lowered its estimate of GDP growth to 6.8% in the fiscal ending March 31, 2023, from an earlier forecast of 7%
The MPC kept the inflation forecast unchanged at 6.7% for the current fiscal and projected it to come down below the upper tolerance limit of 6% in the fourth quarter of the current financial year.
The MPC also decided to remain focused on the withdrawal of the accommodative stance to ensure that inflation remains within the target going forward while supporting growth.

Some Basic Concepts-

Repo rate is the rate at which the central bank of a countrylends money to commercial banks in the event of any shortfall of funds. Here, the central bank purchases the security.
Reverse repo rate is the rate at which the RBI borrows money from commercial banks within the country.
Bank Rate: It is the rate charged by the RBI for lending funds to commercial banks.
Marginal Standing Facility (MSF): MSF is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely.

What is Monetary Policy Committee:

The Monetary Policy Committee is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
The Governor of RBI is ex-officio Chairman of the committee.
The committee comprises six members (including the Chairman) – three officials of the RBI and three external members nominated by the Government of India.
Decisions are taken by majority with the Governor having the casting vote in case of a tie.
The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (4%).