The RBI on Wednesday hiked the key rate for the first time in over four years -- by 0.25%-- to curb inflationary pressure from high oil prices, a move which will trans🥂late into higher EMIs for home, auto and other loans.
With all its members voting for the increasing, the 6-member Monetary Policy Committee (MPC)💯 surprised markets by raising the repo rate, at which it lends to other banks🐭, to 6.25% but kept its policy stance as "neutral".
The reverse repo rate, at꧋ which it borrows from banks, was also raised by s⛄imilar proportion to 6%.
This is the first increase in i▨nterest rate since January 28, 2014 when rates were🐠 hiked by a similar proportion to 8%.
In the subsequent ye💖ars, RBI cut interest rate♒ on six occasions. In its last revision, on August 2, 2017, rates were cut by 25 basis points to 6%.
In the second bi-monthly monetary policy of the 2018-19, RBI saw major upside to inflation from higher oil prices but kept its GDP growth outlook unchanged at 7.4𝕴% for the financial year.
Consumer Price Index (CPI) base﷽d retail inflation was projected at 4.6% for the April-September pe🐼riod and 4.7% in second half of 2018-19 fiscal.
Anticipating firming of interest rate, several banks including SBI, ICICI and Bank of Baroda had in last one week raised lending rates by uꦍp to 0.1% making loans costliers for their borrowers.
The MPC, headed 🐽by RBI Governor Urjit Patel, said it decided to increase the policy repo rate by 25 basis points and keep the stance neutral.
Consequently, the reverse repo rate under the LAF stands adjusted༺ to 6%, and the marginal standing fa♐cility (MSF) rate and the Bank Rate to 6.5%.
Patel said the MPC reiterates its commitment to achieving the medium-term target for headline🅺 inflation of 4% on a durable basis.
The decision of the MPC is consistent with the neutral stance of monetary polic♐y in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth, he added.
Headline inflation has been sharper🌸 than anticipated and it remained above the 4% target in la🌳st 6 months, with RBI maintaining status quo during the period.
As per the latest pr🥃int, retail inf༒lation inched up to 4.58% in April.
Theඣ domestic economic activity h🐼as exhibited sustained revival in recent quarters and the output gap has almost closed, Patel said.
Investment activity, in particular, is recovering well ꧅and could receive a further boost from s🍸wift resolution of distressed sectors of the economy under the Insolvency and Bankruptcy Code, he added.
However, he said: "Geo-political risks, global financial market volatility and the threat o𓂃f trade prot𝕴ectionism pose headwinds to the domestic recovery."
RBI said the pick-up in the momentum of inflation excluding food, fuel and Housing Rent Allowan🌃ce has imparted persistence into higher CPI projections for 2018-19.
“Crude oil prices have been volatile recently and this imparts considerable uncertainty to the i♋nflation outlook – both on the upside and the downside,” it said.
Since the last MPC meet🌊ing in early April, the price of Indian basket of crude surged from $66 a barrel to $74.
Assuring that the RBI would continue to be vigilant on inflation, Pa🎶tel said that "domestic economic activity has exhibited revival in recent quarters and output gap haᩚᩚᩚᩚᩚᩚᩚᩚᩚ𒀱ᩚᩚᩚs almost closed".
Investment activity is recovering well and could get a further boost from resolution of distress sectors of the economy under the 🎶Insolvency and Bankruptcy Cod🍰e.
All members of the MPC Chetan Ghaꦫte, Pami Dua, Ravindra H. Dholakia, Michael Debabrata Patra, Viral V Acharya and Urjit Patel voted in favour of the hike in interest rate.
The minutes of the MPC's meeting will be published by June 20, while the third bi-m🌺⭕onthly meeting for the current fiscal is scheduled on July 31 and August 1, 2018.
The BSE Sensex surged almost 276 points to end above the key 3🐼5,000-mark even as the RBI hiked the policy rate by 0.25% on inflation concerns.
It saw some decline in daไy's gains briefly after th🗹e policy announcement but recovered.
(PTI)
