RBI Hikes Repo Rate By 25 Points To 6.5%

| August 1 , 2018 , 18:13 IST

The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) on Wednesday hiked repo rate by 25 basis points to 6.5 percent.

The repo rate is the rate at which RBI lends short-term money to commercial banks in the event of any shortfall of funds. It is also used by monetary authorities to control the inflation situation in the country.

The RBI has also hiked reverse repo rate by 25 basis points to 6.25 percent. It is the rate at which the central Bank borrows money from the commercial banks.

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 percent within a band of +/- 2 percent while supporting growth.

Also Read: Inflation To Rise, RBI Decides To Keep Repo Rate Unchanged

The RBI had increased the repo rate by 25bps to 6.25 percent in the last policy meet in June.

Addressing a press conference after the meeting of the monetary policy committee, RBI Governor Urjit Patel said, "We already had a few months of turbulence behind us and it looks like that this is likely to continue for how long I don't know. But the trade skirmishes evolved into tariff wars and now we are possibly at the beginning of currency wars."

"Given this, we have to ensure that we run a tight ship on the risks that we control to maximise the chances of ensuring macroeconomic stability and continuing with the growth profile of 7 to 7.5 percent going forward. We do have things that are in our favour and if we continue along that path we ensure that we don't add to the global risk profile that would adversely affect us," he added.

According to Patel, other risks such as higher crude oil prices and an upward inflation trajectory might also impede India's growth rate which he expects to grow at 7.4 percent in 2018-19. 

“Even as inflation projections for Q2 have been revised marginally downwards vis-à-vis the June statement, projections for Q3 onwards remain broadly unchanged,” the RBI said in a statement.

(With Inputs from IANS)