RBI monetary policy: Repo rate is the rate at which the RBI lends short-term funds to commercial banksRBI Governor Urjit Patel-led Monetary Policy Committee announced a hike of 25 basis points in repo rate in its monetary policy statement on Wednesday.
This is the third bi-monthly statement by the central bank for financial year 2018-19.
Repo rate is the key rate at which the RBI lends short-term funds to commercial banks.
In its last policy review, the RBI had announced a 25-basis-point hike in the repo rate while maintaining its policy stance at 'neutral'.
The June rate hike marked the first in more than four years.
Since then, inflation has moved higher, further up from the RBI's target of 4 per cent over the medium term.
The RBI's commentary on the rupee, industrial production, economic growth and crude oil will also be monitored by experts.
Stock markets ended their record-setting spree with the BSE Sensex closing 84 points, or 0.23 per cent, lower at 37,521.
That marked the first lower closing for the Sensex after eight sessions of gains.
The NSE Nifty shed 10 points to settle at 11,346.
Losses in banking, financial services, auto and metal stocks dragged the indices lower.ICICI Bank, Maruti Suzuki, Hindalco Industries, Vedanta and Tata Steel were the top laggards - closing between 2.5 per cent and 1.7 per cent lower - on the 50-scrip Nifty index.
(Read more)Here are the economic growth numbers it expects:7.5-7.6% in first half of 2018-197.3-7.4% in second half7.5% in first half of fiscal year 2019-20The central bank retained its GDP growth projection for the current financial year citing "evenly balanced" risks.Economists found the tone of the RBI policy statement to be more hawkish compared to the June review.
"The tone of policy seems slightly on the hawkish side despite RBI tinkering only marginally with its second-half inflation projection.
The RBI continues to reiterate long-standing risks to inflation and in particular oil prices remain a key risk," said Shashank Mendiratta, India economist, ANZ Bank.
(What experts say on RBI policy)Reserve Bank of India's move on repo rate - the key interest rate at which it lends short-term money to commercial banks - was in line with predictions by 37 of 63 economists in a Reuters poll last week "The hike was expected, but what is surprising is the stance has remained 'neutral'.
We were expecting that since this is the second consecutive hike in two policies, the stance would be changed to 'tightening'," said Anagha Deodhar, economist, ICICI Securities.
"They have not quantified the impact of MSP (minimum support prices) on inflation, or when MSP will start affecting inflation - whether it will be in October or earlier than that.
I would have liked to see some clarity on that." (Read more)The Reserve Bank of India expects the monsoon progress to boost demand in the rural economy on the back of increase in farmers' income.
Here's what the RBI said on monsoon in its monetary policy statement:South-west monsoon has been recovering after brief deficiency in second half of JuneCumulative rainfall up to July 31 was 6% below long-period average (LPA)Overall performance of the monsoon augurs well for food inflation in medium-termMonsoon progress, sharper-than-usual increase in minimum support prices of kharif crops seen boosting rural demandFarmers' income expected to rise going forwardThough monsoon has been normal temporally, its regional distribution needs to be carefully monitored in context of CPI components such as paddyMonetary Policy Committee took note of rise in inflation: RBI Governor Urjit PatelGlobal economic activity has continued to maintain steam but global growth has become uneven: RBIMonetary Policy Committee decision consistent with neutral stance of monetary policy towards medium-term consumer inflation target of 4%: RBI Reverse repo rate stands adjusted to 6.25%, and marginal standing facility rate to 6.75%: RBI in policy statement RBI announces 25 basis points hike in repo rate to 6.5% Among other reasons, economists have cited the hike in minimum support price (MSP).The government last month cleared minimum support prices for 14 kharif crops, a move set to cost nearly Rs.15,000 crore.
This may lead to a rise in food inflation, say analysts.Economists who expect the RBI to announce a 25-basis-point rate hike have cited surging inflation among the reasons to back their views.Retail inflation (Consumer Price Index) accelerated to a five-month high of 5 per cent in June.
That marked a move further away from the central bank's medium-term target of 4 per cent.
Headline inflation (Wholesale Price Index) stood at a 54-month high of 5.77 per cent for the month.
Top laggards on the NSE's benchmark index, Nifty 50, were Hindalco Industries, Vedanta, Eicher Motors, Tata Steel and Maruti Suzuki India, trading with losses of around 1-2 per cent each.The policy statement will be released by the central bank at 2:30 pm.
The current 'neutral' stance adopted by the RBI in October 2016 helps it move either way on the benchmark interest rates.
A switch to a 'hawkish' would mean more aggressive action on key rates going forward.
The broader NSE Nifty50 was trading at 11,341.75, down 0.13 per cent or 14.75 points, with 28 stocks trading in red in the afternoon trade.
Nifty Bank was also down 162 points or 0.58 at 27,602.15.
SP BSE Sensex was trading at 37,517.69, down 88.89 point or 0.24 per cent, after registering a record high of 37,711.87 in the early day trade.
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