RBI raises repo rate to 6.25%, reverse repo rate to 6%

The Monetary Policy Committee on Wednesday left the crucial policy repo rate and reverse repo rate unchanged at 6 percent and 5.75 percent respectively. Here are the key takeaways from the policy

The Monetary Policy Committee on Wednesday left the crucial policy repo rate and reverse repo rate unchanged at 6 percent and 5.75 percent respectively. Here are the key takeaways from the policy

The six-member committee voted unanimously to hike the central bank's repo rate, or the rate at it which lends to banks by 25 basis points to 6.25% from 6% earlier in its second bimonthly monetary policy review of fiscal year 2019.

The reverse repo rate was increased by 25 basis points to 6.00 percent. Some of the banks also increased the deposit rates. The rupee is down 4.7 percent against the dollar this year, Asia's worst performer.

Banks are yet give any indication whether they are planning to make loans even more expensive, in the backdrop of Wednesday's hike.

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, the RBi said.

Last week, SBI increased the lending rate by 10 basis points across all tenors up to three years.

At a press conference, Patel said RBI will remain cautious and vigilant on managing the risks to growth and inflation. But the country's largest lender - along with Punjab National Bank and ICICI Bank - has already raised their lending rates from June 1, signalling hardening of the interest rate scenario. This is the first time that the Reserve Bank of India has hiked the repurchase rate since January 2014. The move was predicted by 14 of the 44 economists in a Bloomberg survey, with the rest seeing no change.

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In a snap poll of 56 economists taken after gross domestic product data on Thursday, 26 of those respondents, or about 46 percent, expect the RBI to take the repo rate higher at the 6 June meeting.

"The MPC has hiked rates keeping in mind the external factors weighing on the economy".

"To some extent the interest rate hike will impact the industry, combined with the high fuel rates, there will be a little slowdown in the take-off", John K Paul, president, Federations of Automobile Dealers Associations (FADA) told ETAuto.

RBI projected CPI inflation at 4.6% in H1 and 4.7% in H2.

"The recent hike in crude prices and better GDP for the last quarter of FY18 suggest inflation trajectory may be on the higher side".

Deputy governor Viral Acharya said RBI will use appropriate instruments to manage liquidity as the surplus is likely to dip later this month.

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