The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) has decided to increase the repo rate by 25 basis points to 6.5% due to inflation concerns.
Repurchase rate or the repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds. Reverse repo — the rate at which the RBI borrows money from commercial banks within the country — is adjusted to 6.25 per cent.
Five members of the MPC voted for the rate hike. While raising the key policy rates, the RBI, however, has maintained the neutral policy stance.
“Uncertainty around domestic inflation needs to be carefully monitored in the coming months,” the central bank said while increasing its inflation projection.
According to the RBI, inflation outlook is likely to be shaped by several factors, including the government’s decision to increase the minimum support price (MSP) for kharif crops.
The RBI has projected the inflation at 4.6 per cent in Q2, 4.8% in H2 of 2018-19 and 5.0% in Q1 of 2019-20 “with risks evenly balanced”.
“The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis,” the RBI said.
