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On Wednesday, the Reserve Bank of India hiked its key interest rate by 50 basis points, to 4.9 percent, and raised its inflation forecast for the current fiscal year to 6.7 percent, considerably beyond the upper end of its goal range of 2-6 percent.

The RBI Governor and the other six members of the Monetary Policy Committee (MPC) voted unanimously in favour of the latest rate hike, which raised the repo rate to 4.9 percent.

If market expectations are correct, the central bank will raise rates again in August, bringing the repo rate above the pre-pandemic level.

Inflation based on the Consumer Price Index (CPI), which the RBI considers when determining monetary policy, soared for the seventh month in a row to an 8-year high of 7.79 percent in April. Since the beginning of the year, retail inflation has stayed over the RBI's target range of 2-6 percent.

The central bank boosted its inflation forecast for the current fiscal year from 5.7 percent in April to 6.7 percent.

"Inflationary risks exist; recent increases in tomato and crude prices are fueling inflation," stated RBI Governor Shaktikanta Das. "Inflation is anticipated to continue over 6% in the first three quarters of this fiscal," the RBI Governor said. "Our actions will be calibrated, with the goal of bringing inflation down to the target level," he said.

The RBI predicted that the Indian economy would grow at 7.2 percent this fiscal year, the same as previously predicted.

Previously, the RBI had boosted its retail inflation projection for the current fiscal year FY23 to 5.7 percent, 120 basis points (4.5 percent) higher than its February forecast, and trimmed its economic growth forecast for 2022-23 to 7.2 percent from 7.8 percent.

The rates for the Standing Deposit Facility and the Marginal Standing Facility were both raised by the same amount, to 4.65 percent and 5.15 percent, respectively.

Analysts also expect the RBI to cut liquidity, bolstering its anti-inflationary efforts and extending its efforts to restore monetary circumstances to what they were before the COVID-19 outbreak triggered drastic stimulus measures.

The governor of the Reserve Bank of India outlined initiatives to boost digital payment system use, including plans to link credit cards to UPI systems.