Reserve Bank of India raises interest rate by 0.25 percent on inflationary concerns
Mumbai: The Reserve Bank of India for the second time in two months on Wednesday increased its benchmark interest rate by 25 basis points on inflationary concerns, a move that will make 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 a 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.
Following the rate hike, the BSE index Sensex slipped from record high to ends 84.96 points lower at 37,521.62.
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 reduced by 25 basis points to 6 per cent.
In the third bi-monthly monetary policy of the 2018-19, RBI on Wednesday 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.
On 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.
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 the first half and 7.3-7.4 per cent in the second half, with risks evenly balanced.
