The Monetary Policy Committee voted unanimously to lift the repo rate by 25 basis points, the first increase in nearly four years, and raised its inflation forecast to 5.2 percent.
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 hike. It changed the policy stance from neutral to calibrated tightening by a 4-2 majority, Governor Sanjay Malhotra said in the bank's policy statement. The standing deposit facility rate moved to 5.25 percent, and the marginal standing facility rate and the bank rate to 5.75 percent.
Malhotra said headline consumer inflation is expected to average almost 5.8 percent over the next three quarters. The bank lifted its inflation forecast for the financial year to 5.2 percent from 5 percent and its growth forecast to 7.1 percent from 6.7 percent. He said rate cuts were off the table in the near term and that the next move could only be a hike or a pause.
Reuters said nearly 60 percent of economists in its poll had expected a 25-basis-point increase. India Today linked the shift to oil-price volatility after the West Asia conflict disrupted flows through the Strait of Hormuz, a route India uses for most of its imported crude.
The decision raises the floor for loans priced off the repo rate. Malhotra said the length of any further tightening would depend on inflation and growth data. No additional hike was announced on Wednesday.
People Sentiments Negative
- Malhotra said rate cuts were off the table in the near term.
- HDFC Bank economist Sakshi Gupta told Reuters she expected another 50 to 75 basis points of hikes in coming months.