RBI increases Repo Rate by 0.25% to 6.25% – June 2018

Updated: 29-08-2023 10:00:30 AM

RBI’s second policy decision of FY19 maintained a neutral stance. The central bank hiked the repo rate by 25 bps to reach 6.25%. With this decision, home loans are hit hard as they witnessed first increase in past four years. The Monetary Policy Committee’s Chairman Mr. Urjit Singh Patel stated “Economic activity has exhibited revival” by himself voting for the increase of the repo rate along with him MPC’s committee of six members also voted for the increase by also keeping its stance neutral.

For the first half, RBI has revised its retail inflation estimate for 2018-19 to 4.8-4.9 % and 4.7% for the second. The MPC also stated that the durable increase in global crude oil price is the prime reason of retail inflation. For the year 2018-19, the central bank retained its gross domestic product (GDP) growth projection at 7.4 %.

Highlights of MPC Policy:

• The Reserve Bank of India hikes key lending rate or repo rate by 25 bps to 6.25%
• Reverse repo rate now stands at 6%; FY19 growth projection retained at 7.4 %
• The central bank projects retail inflation at 4.8-4.9% for April-September, 4.7% in H2 FY18
• It sees major upside risk to the inflation path as crude prices rose 12%
• MPC says volatile crude oil prices add uncertainty to its inflation outlook
• RBI expects boost to investments from swift resolution under the Insolvency & Bankruptcy Code
• Geo-political risks, financial market volatility, trade protectionism to impact domestic growth
• Adherence to budgetary targets by the Centre and states will ease upside risks to the inflation outlook
• All members of the monetary policy committee voted for a 0.25% rate hike
• Next meeting of the Monetary Policy Committee on July 31 and August 1

The MPC’s decision was in sync with a Reuters poll, where an increasing number of economists expected the RBI to raise interest rates, even as some said the rate might be held for now in preparation for an August hike.