Published: Wed, August 01, 2018
Markets | By Noel Gibbs

RBI hikes repo rates by 25 basis points


The six-member Monetary Policy Commitee (MPC), chaired by RBI Governor Urjit Patel, started its three-day discussions from 30th July, 2018, for decision on key interest rates amid rising oil prices and inflation floating around 5 per cent.

Five of the six members on the rate panel voted for a rate increase, Reuters reported. It may be noted that the central bank raised repo rate by 25 bps to 6.25 per cent in June, marking the first hike by the MPC in the last four years.

The monetary policy committee of the central bank, which determines the policy interest rate cited inflation concerns for its decision but retained its "neutral" stance.

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In the second bi-monthly resolution of 2018-19, it had projected CPI inflation for 2018-19 at 4.8-4.9 per cent in the first half of the financial year and at 4.7 per cent in the second half of the fiscal. This is the first time in almost five years that the RBI has gone for a back-to-back hike, having increased repo rate by 25 bps to 6.25 per cent + in its last policy meet in June.

Replying to a question about whether borrowing is cheaper in the UAE or in India for NRIs, Valecha said: "It is cheaper to get a loan in UAE than in India as of this hike, although the US Federal Reserve is supposed to hike rates much more aggressively than the RBI". One basis point is one hundredth of a percentage point.

"The inflation outlook is likely to be shaped by several factors".

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"Even as inflation projections for Q2 have been revised marginally downwards vis-a-vis the June statement, projections for Q3 onwards remain broadly unchanged, RBI said".

The central bank also said indicators suggested that economic activity continued to be strong. The progress of the monsoon so far and a sharper than the usual increase in MSPs of kharif crops are expected to boost rural demand by raising farmers' income. Reverse repo - the rate at which the RBI borrows money from commercial banks within the country - is adjusted to 6.25 per cent.

The next meeting of the MPC is scheduled from October 3 to 5, 2018.

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