Beena Parmar Moneycontrol News
The Reserve Bank of India’s monetary policy committee (MPC) has raised the key policy repo rate by 25 basis point to 6.25 percent.
Follow our live coverage of RBI's monetary policy announcement
The repo rate is the rate at which banks borrow short-term funds from the RBI. One basis point is a hundredth of a percentage point.
The last time RBI had raised the repo rate was in January 2014, by 25 bps to 8.00 percent. Since then, it has either cut rates or maintained the status quo.
In the six-member MPC, headed by RBI governor Urjit Patel, all six members voted for a rate hike. However, the central bank maintained its stance on liquidity at 'neutral'.
The MPC began its 3-day meeting on Monday, June 4, to review the second bi-monthly monetary policy for 2018-19.
The RBI also revised its forecast on consumer inflation for the first half of the ongoing fiscal year to 4.8-4.9 percent, from the 4.4-4.7 percent forecast earlier.
For the second half of FY19, the central bank has revised its forecast on inflation to 4.7 percent, from 4.4 percent earlier.
Rising crude oil prices across the globe have pushed domestic fuel inflation up, said RBI Deputy Governor Viral Acharya at the post-policy press conference. However, he added that food inflation has been benign.
India's retail inflation for April was 4.58 percent, 30 basis points higher than March's 4.28 percent. The RBI has a target of 4.00 percent for inflation, within a band of 2.00 percent either way.
Urjit Patel said that the central bank's forecast on GDP growth for FY19 has been kept unchanged at 7.4 percent.
In the face of hardening of the interest rates, several top lenders, including State Bank of India (SBI), Punjab National Bank (PNB), ICICI Bank and HDFC have already raised their lending rates from June 1.
Some of the banks have also increased their deposit rates.
In order to ease the burden of rising interest rates on banks, the RBI permitted them to spread the losses they incur on bond trading during the June quarter over the next four quarters.
The minutes of the MPC's 3-day meeting will be made public on June 20, the central bank said. The MPC will meet again to review the third bi-monthly monetary policy for FY19 on July 31 and August 1.
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