First rate hike since Modi govt came to power makes the current MPC meet different

Another bone of contention between the RBI and the government has been the latter's suggestion to start a payments regulator outside the purview of the RBI. (Image: Reuters)

In the second bi-monthly policy review of this financial year, the six-member monetary policy committee changed its decision from status quo in the last meeting to a rate hike in the present one. The short-term lending rate has been increased by 25 basis points to 6.25 per cent from 6 percent. The last time this benchmark rate was raised was in January 2014.

This is also the first interest rate hike in a four-and-a-half years, since the Bhartiya Janata Party (BJP)-led National Democratic Alliance (NDA) government came to power in May 2014. The reverse repo rate has been adjusted to 6 per cent.

In addition, all the six members of the committee voted unanimously to hike repo rate by 25 basis points. In the last meet, Chetan Ghate, Pami Dua, Ravindra Dholakia, Viral Acharya and Urjit Patel had voted in favour of the monetary policy decision. Michael Debabrata Patra had voted for an increase in the policy rate of 25 basis points.

In the last monetary policy meet, not only did the RBI maintain status quo with neutral stance but lowered its inflation forecast too.

The MPC, headed by Governor Urjit Patel, met for three days for the first time instead of the usual two days due to some administrative exigencies.

What’s in store for the MPC meet in October?

According to India Ratings, one more hike is in store in FY19.

Concurring with another rate hike, Sajjid Chinoy of JPMorgan said that there is a possibility of a hike only in October.