For the first time in four years, the Reserve Bank of India (RBI) on Wednesday increased Repo Rate by 25 bps to 6.25%. The repo rate is the rate at which the RBI gives short-term money to the banks. Reverse Repo rate, the rate at which the Central ban borrows from commercial banks, is at 6.50%.
In the second bi-monthly monetary policy for the current fiscal, the central bank revised upwards the retail inflation range to 4.8-4.9 percent in the first half of 2018-19, and 4.7 percent in the second half. The decision is taken in its June monetary policy meet.
With all the six members voting for an increase in policy rates, the Monetary Policy Committee raised "repo rate by 25 basis points and kept the stance neutral", RBI said in a statement.
Excluding the impact of HRA revisions, CPI-based inflation is projected at 4.6 percent in first half of 2018-19, and 4.7 percent in H2, RBI said.
RBI retained the GDP growth for the financial year 2018-19 at 7.4 percent.
The hike has come in contrast to what the Street had expected.
The following are the highlights of the second bi-monthly monetary statement for 2018-19:
* RBI hikes key lending rate (repo) by 0.25 per cent to 6.25 pc
* Rate hike is the first in four-and-half-years
* Reverse repo rate stands at 6 pc, bank rate at 6.50 pc
* Growth projection retained at 7.4 pc for 2018-19
* Projects retail inflation at 4.8-4.9 pc for April-September, 4.7 pc in H2
* Major upside risk to the inflation path as price of crude rose by 12 pc
* Volatile crude oil prices adds to uncertainty to the inflation outlook
* Investments recovering well; to get boost from swift resolution under IBC
* Geo-political risks, financial market volatility, trade protectionism to impact domestic growth
* Adherence to budgetary targets by the Centre and states will ease upside risks to the inflation outlook
* All members of the monetary policy committee voted for 0.25% rate hike
* Next meeting of the MPC on July 31 and August 1.
(With PTI inputs)