RBI raises interest rate by 0.25% on inflationary concerns

• The Reserve Bank of India, for the second time in two months, raised its benchmark interest rate by 25 basis points on inflationary concerns, a move that will make the home, auto and other loans expensive.

• With five of its members voting for the increase, the 6-member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel, increased repo rate, at which it lends to other banks, to 6.5 per cent but kept its policy stance as “neutral”.

• The reverse repo rate, at which it borrows from banks, was also raised by the similar proportion to 6.25 per cent. The marginal standing facility (MSF) rate and the Bank Rate were also raised to 6.75 per cent.

• Anticipating firming of interest rate, country’s largest lender SBI has raised fixed deposit rate by up to 0.1 per cent. Other banks are also likely to firm up lending rates making loans costlier for borrowers.

• RBI had last raised the repo rate on June 6 by 0.25 per cent to 6.25 per cent. That increase was the first since January 28, 2014 when rates were hiked by a similar proportion to 8 per cent.

• In the subsequent years, RBI cut the interest rate on six occasions. In its last revision, on August 2, 2017, rates were cut by 25 basis points to 6 per cent.

• In the third bi-monthly monetary policy of the 2018-19, RBI today cited various concerns to inflation like volatile crude prices, uncertainty in the global financial market, hardening of input prices for corporates, uneven distribution of rainfall, fiscal slippages and rise in MSP of foodgrains.

• With regard to inflation, RBI said, it is projected at 4.6 per cent in the second quarter, and 4.8 per cent in the second half of 2018-19.

• Excluding the Housing Rent Allowance (HRA) impact, CPI-based retail inflation is projected at 4.4 per cent in second quarter, 4.7-4.8 per cent in second half of the current fiscal.

• In last review, inflation for 2018-19 has projected at 4.8-4.9 per cent in first half and 4.7 per cent in second half, including the HRA impact for central government employees, with risks tilted to the upside.

• Based on an overall assessment, it said, GDP growth projection for 2018-19 is retained, as in the June statement, at 7.4 per cent, ranging 7.5-7.6 per cent in first half and 7.3-7.4 per cent in second half, with risks evenly balanced.

• Five members of MPC — Chetan Ghate, Pami Dua, Michael Debabrata Patra, Viral V Acharya and Urjit R Patel voted in favour of the decision while Ravindra H Dholakia voted against the decision.

• “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,” he said.

• The next meeting of the MPC is scheduled from October 3 to 5, 2018

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