RBI bites the bullet, hikes repo rate by 25 bps for second time in a row
NEW DELHI: In line with market expectations, the monetary policy committee (MPC) of the Reserve Bank on Wednesday hiked repo rate by 25 basis points to 6.50 per cent in its third bi-monthly monetary policy review of 2018-19.
Repurchase rate, or repo, is the rate at which the RBIlends money to commercial banks in the event of any shortfall of funds.
The RBI move means it's a back to back interest rateincrease. In its June policy meet, the rate-setting panel headed by Governor Urjit Patel raised repo rate by 25 basis points to 6.25 per cent. Back then, that was the first rate increase since Narendra Modi came to power in May 2014.
This is the first time since October 2013 that the rate has been increased at consecutive policy meetings.
The MPC kept its policy stance neutral at today's meet.
Reverse repo -- the rate at which the Reserve Bank borrows money from commercial banks within the country -- was adjusted to 6.25 per cent.
Even as inflation projections for second quarter have been revised marginally downwards vis-à-vis the June statement, projections for the third quarter onwards remain broadly unchanged, the RBI said in a statement.
The rupee also strengthened marginally to 68.50 to the dollar from 68.54 before the announcement, but came off highs to trade at 68.58 to the dollar.
"There are also some positive signs in the economy. Auto sales numbers are quite good from the last quarter, which are aided by better monsoon. This clearly indicates that rural areas are witnessing a strong recovery. Apart from domestic cues, the RBI is closely monitoring what is happening at the global level," the expert said.