Published: Thu, August 02, 2018
Markets | By Noel Gibbs

RBI monetary policy: Repo rate hiked by 25 bps


The RBI's Monetary Policy Committee (MPC) raised the repo rate INREPO=ECI by 25 basis points to 6.50 percent. The reverse repo rate has been hiked to 6.25%, the RBI announced after its three-day Monetary Policy Committee (MPC) meeting.

The repo rate has been hiked from 6.25 per cent to 6.5 per cent.

Traders said though the market was largely prepared for a rate hike on Wednesday, yields would still shoot up by 5-10 basis points after one, and the surge would be much more if the RBI also tightens its stance.

However, the MPC being headed by RBI Governor Urijit Patel has kept their stance neutral.

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However, it's important to note that just days ahead of the last RBI's monetary policy review in June, major banks had increased benchmark lending rates or MCLR (Marginal Cost of funds based Lending rate) by up to 0.1 per cent, making loans costlier for consumers. The following hike in the repo rate at two consecutive policy meetings by the central bank comes after the hikes it had made in October 2013. The hike was done following inflationary concerns. This is likely to lead to an increase in the interest bank customers pay on loans, be it home loan, auto loan or personal loan.

In June, the RBI had raised the repo rate by 0.25 percent to 6.25 percent.

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.

"Uncertainty around domestic inflation needs to be carefully monitored in the coming months", the central bank said while increasing its inflation projection.

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HDFC's chief economist, Abheek Barua, said, today's policy decision suggests that the RBI seems to be taking a long term view on inflation rather than remaining purely data dependent.

Repurchase rate or the repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.

The RBI policy retained the GDP growth projection for 2018-19, as in the June statement, at 7.4 per cent, ranging between 7.5-7.6 per cent in the first half of the fiscal and 7.3-7.4 per cent in the second half of the fiscal.

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