RBI hikes Repo Rate by 25 bps to 6.50%

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Mumbai : As expected, the Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) today increased repo rates by 25 basis points to 6.50 %.

“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” RBI said.

Consequently, 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.

“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” RBI said in a statement.

In June, the MPC had increased the repo rate by 25 basis points for the first time in four-and-a-half years, citing a major upside risk to the baseline inflation on the back of high crude oil price.

Inflation

The RBI has estimated that the rise in MSP of Khariff crops and high crude oil prices will impact Inflation, but the GST cut in several items will have a moderator effect on WPI. RBI has projected that Inflation will be at 4.6 per cent in Q2, 4.8 per cent in H2 of 2018-19 and 5.0 per cent in Q1:2019-20, with risks evenly balanced (Chart 1). Excluding the HRA impact, CPI inflation is projected at 4.4 per cent in Q2, 4.7-4.8 per cent in H2 and 5.0 per cent in Q1:2019-20.

Growth

RBI has retained GDP growth projection for 2018-19 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; GDP growth for Q1:2019-20 is projected at 7.5 per cent

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