The Reserve Bank of India (RBI) on Wednesday hike REPO rate following its August monetary policy meet. Headed by Governor Urjit Patel, Monetary Policy Committee (MPC) raised the repo rate by 25 basis points to 6.50%. The MPC also raised the key rate by 25 bps in June.
Commenting over the MPC’s decision, RBI mentioned that it is consistent with the neutral stance of monetary policy in consonance with an idea to achieve the medium-term target for CPI (Consumer price Index) inflation of 4% within a range of +/- 2%.
The repo rate is the rate at which the RBI lends short-term money to the banks.
RBI Governor Urjit Patel said on the domestic front, monetary policy committee took note of rise in retail CPI inflation for 3rd consecutive month in June. Even as food inflation remained muted, other components recorded moderate to sharp price increases.
Factors considered for the rate hike:
Minimum support prices (MSPs) of at least 150% of the production cost for all kharif crops for the sowing season of 2018-19 will have direct impact on food inflation
Crude oil prices, though moderated, still remain at elevated levels
The overall performance of monsoon, which so far augurs well for the food inflation in the medium term
Inflation in items excluding food and fuel has been broad-based and has risen significantly in recent months, reflecting greater pass-through of rising input costs and improving demand conditions
Reduced GST on several goods and services which have direct moderating impact on inflation