Key points
- The repo rate rose from 4.00% to 6.50% between May 2022 and February 2023.
- CPI inflation averaged 6.7%, above the 6% upper tolerance limit for three consecutive quarters to September 2022.
- Real GDP grew 7.2% (provisional) despite tighter policy.
- The Nifty 50 was flat (−0.6%); the rupee weakened about 7.7% to about 82.17 per US dollar.
The year in brief
FY2022-23 was dominated by the global fight against inflation. Energy and food prices stayed high after the start of the war in Ukraine, and central banks in advanced economies raised rates at the fastest pace in decades. India grew faster than most large economies, at 7.2% in the provisional estimate, but with inflation persistently above target.
| Indicator | Value | Note |
|---|---|---|
| Real GDP growth | 7.2% | Provisional estimate, May 2023; later revised to 7.6% (2011-12 base). |
| CPI inflation, annual average | 6.7% | MoSPI / RBI |
| RBI repo rate, year-end | 6.50% | RBI |
| 10-year government bond yield, year-end | ≈7.31% | Approximate, last trading day |
| Nifty 50, year-end close | 17,359.75 | −0.6% over the year, price only |
| USD/INR, year-end | ≈82.17 | Rupee weaker by ≈7.7% |
| Central government fiscal deficit | 6.4% of GDP | Provisional actuals |
Policy and credit
The RBI began with an unscheduled 40 basis point increase in May 2022 and followed with five further increases, taking the repo rate to 6.50% by February 2023. Because CPI inflation exceeded 6% for three consecutive quarters, the Monetary Policy Committee was required to report to the government explaining the breach, the first such report under the inflation-targeting framework.
Floating-rate loans linked to external benchmarks such as the repo rate repriced within months, so the increase reached many business borrowers quickly. The fiscal deficit narrowed to 6.4% of GDP.
Markets
The Nifty 50 ended the year at 17,359.75, almost unchanged, as higher rates offset earnings growth. The 10-year government bond yield rose to about 7.31%. The rupee crossed 80 per US dollar for the first time in July 2022 and ended the year at about 82.17, as the US dollar strengthened against most currencies.
What it meant for businesses
Interest costs on working-capital and term loans rose, often by more than two percentage points within a year. Importers and businesses with dollar-linked inputs faced a weaker rupee on top of high commodity prices. Exporters gained some relief from the currency but faced slowing demand in their markets. Projections built in the low-rate years needed to be rebuilt.
Long-term perspective
Rate cycles are a normal part of the operating environment, not an exception. Useful disciplines include:
- Show interest cost at several rate levels in every financial projection, not just today's rate.
- Understand which loans reprice with the policy rate and when.
- Write down a currency policy for import and export exposure, agreed in advance with the bank, rather than deciding transaction by transaction.
Sources and method
- Ministry of Statistics and Programme Implementation (MoSPI): national accounts press releases and CPI releases.
- Reserve Bank of India: Monetary Policy Statements, Annual Reports and the Database on Indian Economy (DBIE), including the USD/INR reference rate.
- National Stock Exchange of India: Nifty 50 index closing values.
- Ministry of Finance / Controller General of Accounts: Union Budget documents and provisional accounts (fiscal deficit).
Fiscal year runs 1 April to 31 March. GDP growth is shown as first published after the year closed; later official revisions are noted in the table. Market levels are closing values on the last trading day of the fiscal year; bond yields and exchange rates are rounded. Index changes are price only and exclude dividends.