Mumbai, Jun 6 : Citing the rise in global crude oil prices as a risk to consumer inflation, the Reserve Bank of India (RBI) hiked the Repo Rate, or the rate at it which lends to banks, by 25 basis points, to 6.25 pc, in its second bimonthly monetary policy review on Wednesday.
There are many worrying factors such as oil prices, volatile currency, large-scale selling by foreign portfolio investors, falling reserves and inflationary expectations.
The Reserve Bank of India’s monetary policy committee concluded its three-day meet on Wednesday with a decision to increase its benchmark interest rate by 25 basis points.
The reverse repo rate has also been raised by 25 basis points to 6 pc.
The key interest rate may be hiked for the first time since January 2014 on account of rising crude oil prices and high inflation. The RBI had last raised the short-term lending rate (repo) to 8 per cent in January 2014. Since then, rates have either reduced it or maintained status quo.
For first half of FY19, the RBI has hiked the inflation projection to 4.8-4. pc from the earlier 4.7-5.1 pcfor the first half of FY19 which includes the impact of HRA. The RBI has hiked the projection for second half to 4.7 pc from an earlier 4.4 pc.
RBI Governor Urjit Patel said that since its last meeting, the MPC noted the rise in the value of the Indian crude basket from $66 to USD74 a barrel.
“Since the MPC’s meeting in early April, the price of Indian basket of crude surged from USD 66 a barrel to USD 74. This, along with an increase in other global commodity prices and recent global financial market developments, has resulted in a firming up of input cost pressures,” the RBI said.
The GDP growth for 2018-19 is retained at 7.4 per cent as in the April policy. GDP growth is projected in the range of 7.5-7.6 per cent in H1 and 7.3-7.4 per cent in H2, with risks evenly balanced.
“The MPC notes that domestic economic activity has exhibited sustained revival in recent quarters and the output gap has almost closed. Investment activity, in particular, is recovering well and could receive a further boost from swift resolution of distressed sectors of the economy under the Insolvency and Bankruptcy Code,”
the RBI said.
UNI.
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