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On Wednesday, the Reserve Bank of India raised the repo rate by 25 basis points to 6.5% The repo rate or the benchmark lending rate was raised for the first time in over four 25 basis points to 6.25%. This was announced by the RBI announced after its three-day Monetary Policy Committee (MPC) meeting.
The Monetary Policy Committee consisting of six members headed by RBI Governor Urjit Patel kept its stance at neutral. Many economists had anticipated a second consecutive RBI rate hike in today’s policy.
The average inflation projection was raised by the RBI for the second half of the year to 4.8% from the 4.7% projected in June. Inflation might edge higher to 5% in the first quarter of the next fiscal year as per the central bank.
Elevated crude oil rates have been the cause of major worry for the central bank. But it is sanguine about monsoon performance as it is good for food inflation in the midterm.
It pegged CPI-based retail inflation at 4.2% for July-September and rose up to 4.8% during the 2nd half of the FY.
The Reserve Bank of India, in a statement, said “On the basis of an assessment of the current and evolving macroeconomic situation at its meeting, the Monetary Policy Committee (MPC) decided to hike the policy repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points to 6.5%.”
The decade old benchmark of India’s bond rose from 7.78% to 7.84% prior to the announcement briefly but returned to its pre decision levels.
The rupee also strengthened marginally to 68.50 to the dollar from 68.54 before the announcement, but came off highs to trade at 68.58 to the dollar.
Market participants anticipate further hike in growth as inflation is on the rise.
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