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RBI hikes interest rate on inflation concerns

June 06, 2018 15:32 IST

RBI retained the GDP growth for the financial year 2018-19 at 7.4 per cent.

The Reserve Bank for the first time in four-and-half-years raised key interest rate on Wednesday by 25 basis points to 6.25 per cent on inflation concerns arising from surge in international oil prices.


In the second bi-monthly monetary policy for the current fiscal, the central bank revised upwards the retail inflation range to 4.8-4.9 per cent in the first half of 2018-19, and 4.7 per cent in the second half.

It includes the impact from HRA for central government employees, with risks tilted to the upside.

With all the six members voting for a increase in policy rates, the Monetary Policy Committee raised "repo rate by 25 basis points and kept the stance neutral", RBI said in a statement in Mumbai.

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 H2, RBI said.

RBI retained the GDP growth for the financial year 2018-19 at 7.4 per cent.

“The resulting pick-up in the momentum of inflation excluding food, fuel and HRA has imparted persistence into higher CPI (Consumer Price Inded) projections for 2018-19,” RBI said in the policy.

“Crude oil prices have been volatile recently and this imparts considerable uncertainty to the inflation outlook - both on the upside and the downside,” it said.

The April policy RBI had projected CPI inflation for 2018-19 to be at 4.7-5.1 per cent in H1 and 4.4 per cent in H2, which included the HR impact for central government employees.

Highlights of the Monetary Policy
  • RBI hikes key lending rate (repo) by 0.25 per cent to 6.25%
  • Rate hike is the first in four-and-half-years
  • Reverse repo rate stands at 6%, bank rate at 6.50%
  • Growth projection retained at 7.4% for 2018-19
  • Projects retail inflation at 4.8-4.9% for April-September, 4.7% in H2
  • Major upside risk to the inflation path as price of crude rose by 12%
  • Volatile crude oil prices adds to uncertainty to the inflation outlook
  • Investments recovering well; to get boost from swift resolution under IBC
  • 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 0.25% rate hike
  • Next meeting of the MPC on July 31 and August 1.

Photograph: Danish Siddiqui/Reuters

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