Monetary policy: RBI hikes repo rate by 25 bps to 6.5%

The Reserve Bank of India (RBI), in its third policy statement of 2018-19 announced today, has hiked key interest rate by 25 basis points to 6.5 per cent.

The Reserve Bank of India (RBI), in its third policy statement of 2018-19 announced today, has hiked key interest rate by 25 basis points to 6.5 per cent.
 
"On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.5 per cent," said Monetary Policy Committee (MPC).
 
The reverse repo rate under the LAF stands adjusted to 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75 per cent, it further said.
 
The policy statement said, "The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth."
 
As per the central bank, retail inflation, measured by the year-on-year change in the CPI, rose from 4.9 per cent in May to 5 per cent in June, driven by an uptick in inflation in fuel and in items other than food and fuel, whlie food inflation remained muted due to lower than usual seasonal uptick in prices of fruits and vegetables in summer months.
 
The Committee projected inflation at 4.6 per cent in Q2, 4.8 per cent in H2 of 2018-19 and 5.0 per cent in Q1 of 2019-20. It projected CPI inflation at 4.4 per cent in Q2, 4.7-4.8 per cent in H2 and 5.0 per cent in Q1 of 2019-20.
 
In June, RBI had projected consumer inflation at 4.8-4.9 per cent in the first half and 4.7 per cent in the second half of 2018-19.
 
The statement says rising trade tensions may have an adverse impact on India’s exports. 
 
It retained GDP growth projection for 2018-19, as predicted in the June statement, at 7.4 per cent, ranging 7.5-7.6 per cent in H1 and 7.3-7.4 per cent in H2, with risks evenly balanced. 
 
The GDP growth for Q1 of 2019-20 is projected at 7.5 per cent, it said.
 
The MPC, in its June policy statement, had raised repo rate by 25 basis points to 6.25 per cent. That was the first rate increase since Narendra Modi came to power in May 2014. 

 


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