The Monetary Policy Committee voted unanimously to lift the repo rate by 25 basis points, the first increase in nearly four years, and shifted its stance to calibrated tightening.
The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.5 percent on Wednesday, the first increase in nearly four years, Reuters reported from Mumbai. The six-member Monetary Policy Committee voted unanimously for the move.
Governor Sanjay Malhotra said the economy had been strong and momentum broad-based, but that the inflation outlook had worsened since the last meeting. The bank lifted its inflation forecast for the current financial year to 5.2 percent from 5 percent and raised its GDP growth forecast to 7.1 percent from 6.7 percent, Reuters reported.
The committee also changed its stance from neutral to calibrated tightening. Malhotra said the length and size of any further increases would depend on growth, inflation and the outlook. In a statement posted by the central bank, he said the standing deposit facility rate would stand at 5.25 percent and the marginal standing facility rate and bank rate at 5.75 percent.
Nearly 60 percent of economists in a Reuters poll had expected a 25-basis-point rise. The decision puts India with other central banks that have tightened as fuel and other prices stay elevated after the Middle East conflict.
The bank did not announce a timetable for the next meeting in the Reuters account. Markets will now watch how lenders pass the higher policy rate into borrowing costs.
People Sentiments Mixed
- Malhotra said inflation and its outlook are not as benign as they were last year.
- He said the duration of any hiking cycle would depend on incoming growth and inflation data.