INSUBCONTINENT EXCLUSIVE:
The reverse repo rate under which the RBI borrows from banks has been adjusted to 6%.
The Reserve Bank of
India (RBI) on Wednesday hiked the key lending or repo rate by 25 basis points to 6.25 per cent as it announced its second bi-monthly
monetary policy statement for 2018-19
The repo (or repurchase) rate is the rate of interest which the RBI charges to lend short-term loans to the commercial banks
The reverse repo rate under which the RBI borrows from banks was adjusted to 6 per cent
"The decision of the MPC (Monetary Policy Committee) 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 per cent within a band of +/- 2 per cent, while
supporting growth," the RBI said in its policy statement.The RBI, however, maintained a neutral stance in the policy statement and retained
the GDP growth for 2018-19 at 7.4 per cent.RBI's decision to hike repo rate was guided by a sharp spike in retail inflation which rose
sharply to 4.6 per cent in April
Some experts, however, feel that the hike is positve for "savers"
"Recent hike in crude prices better GDP for last quarter of FY 18 suggest inflation trajectory may be on the higher side
Though, this may put some pressure on borrowers, it is positive news for the savers in the economy," said Anita Gandhi, Whole Time Director
at Arihant Capital Markets.The RBI kept the retail inflation in the range of 4.7-5.1 per cent in the first half of 2019 and 4.4 per cent in
the second half of the fiscal.RBI's decision was surprising because most experts were expecting it to take a hawkish stance in the June
policy review and to go for a rate hike only in August.Immediately after the announcement, the SP BSE Sensex was trading 222.81 points or
0.64 per cent higher at 35,126.02 while the broader Nifty50 of the National Stock Exchange traded at 10,646.05, with a gain of 52.90 points
before the figures for the gross domestic product (GDP) were released, 21 of 57 economists, or about 40 per cent, expected the RBI to raise
interest rates in the June meeting
However, in a snap poll of 56 economists taken after the GDP data release, 26 of the respondents, or about 46 per cent, said that they
expect the RBI to take the repo rate higher in June.In the January-March quarter, the economic growth or gross domestic product (GDP)
accelerated to 7.7 per cent, which is a near 2-year high.Retail inflation rose to 4.58 per cent, after easing for three straight months
while wholesale inflation rose to 3.18 per cent in April
This was the sixth straight month in which retail inflation level was higher than the RBI's medium-term target of 4 per cent.
