New Delhi : For the first time in four years, the Reserve Bank of India raised the repo rate on Wednesday by 25 basis points to 6.25 per cent in a widely anticipated decision. RBI governor Urjit Patel said the decision was taken on the back of rising crude oil prices and HRA revision by various states that have pushed headline inflation up.
It was in January 2014 that RBI had last raised the short-term lending rate (repo) to 8 per cent, since then it has either reduced it or maintained status quo. The announcement was made after the Monetary Policy Committee (MPC), the rate-setting body of the RBI, completed its second bi-monthly review in Mumbai. Repo rate is the rate at which the RBI lends money to banks and is an important tool for RBI to control inflationary trends.
A higher repo rate will make borrowing expensive for banks, which in turn means that they are likely to charge higher interest rates on loans from customers. Effective from June 1, leading banks, SBI, PNB and ICICI have already hiked their lending rates mostly across all tenures by as much as 10 basis points.
The central bank revised the retail inflation range upwards to 4.8-4.9 per cent in the first half of 2018-19, and 4.7 per cent in the second half. Excluding the impact of HRA revisions, CPI-based inflation is projected at 4.6 per cent in first half of 2018-19, and 4.7 per cent in the second half, RBI said.
However, RBI retained the GDP growth for the financial year 2018-19 at 7.4 per cent. This comes after the impressive growth clocked in the January-March quarter, which accelerated to 7.7 per cent, a near 2-year high.
It seems Niti Aayog Vice Chairman Rajiv Kumar’s worst fears have come true. On Monday, Kumar had said an “overreaction” by RBI in its monetary policy review would be an area of concern for the government. The visible increase in core inflation could just be a “transitory phase” and the central bank “shouldn’t panic into believing that this is a sign of inflationary expectations getting entrenched”, Kumar had opined.