The Reserve Bank on Wednesday hiked key benchmark policy rate by 25 basis points to 6.5 per cent, citing sticky core inflation.

This is the sixth time interest rate has been hiked by the Reserve Bank of India (RBI) since May last year, taking the total quantum of hike to 250 basis points.

Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) by a majority decided to raise the policy repo rate by 25 basis points and keep a 'strong vigil' on inflation outlook.

"Policy rate at 6.5 per cent still trails the pre-pandemic level," Das said, adding that core inflation will remain sticky.

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Core inflation generally refers to inflation in manufactured goods.

The governor said the inflation will moderate in the next fiscal but remain above the 4 per cent level. The RBI is mandated to keep inflation at 4 per cent with a margin of 2 per cent on either side.

TTO Graphics

The RBI projected India's economic growth to slow down to 6.4 per cent in FY24 from 7 per cent in the current fiscal, citing risks from geo-political tension and tightening global financial condition.

Das said the RBI's internal survey says manufacturing, services and infrastructure sector firms are optimistic of the business outlook. However, protracted geo-political tension, tightening global financial conditions and external demands continue as downside risks to the domestic outlook, he noted.

"The real GDP growth for 2023-24 is projected at 6.4 per cent," Das said.

In 2023-24, the growth in the June and September quarter is projected at 7.8 per cent and 6.2 per cent, respectively. In the December and March quarter, the GDP growth is estimated at 6 per cent and 5.8 per cent, respectively.

"Monetary policy will continue to be agile and alert to effectively address challenges to the economy," Das said.

Several economists and rating agencies have projected India's real GDP growth to slow to between 6-6.5 per cent in the next fiscal.