RBI increases repo rate by 25 basis points to 6.25 per cent

Mumbai: The Reserve Bank of India for the first time in four-and-half-years raised key interest rate today by 25 bps (basis points) to 6.25 per cent on inflation concerns arising from surge in international oil prices.

The repo rate is the rate at which the RBI lends short-term money to the banks. 

The decision of increasing the key rates were taken after the RBI's June monetary policy meet. 

The Reserve Bank's six-member MPC (monetary policy committee), headed by governor Urjit Patel, has also increased the reverse repo rate -- the rate at which the RBI borrows from commercial banks -- to 6 per cent.

The Reserve Bank Governor Urjit Patel, in a media briefing, said that the rates have been hiked after "a prolonged pause".

After falling for three consecutive months, retail inflation in April rose to 4.58 per cent, wholesale inflation stood at 3.18 per cent which was four month high in April.

The Reserve Bank of India today revised retail inflation estimate for 2018-19 to 4.8-4.9 per cent for first half, 4.7 per cent in the second half of the year. Fuel price hike led to the rise in wholesale inflation in April.

The increase in both retail and wholesale inflation was higher than expected in the month of April.

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After hitting all-time high of Rs 78.43 a litre for petrol and Rs 69.31 for diesel on May 29. After falling for seven consecutive days, petrol and diesel prices has fallen 8 paise and 12 paise respectively today.

Petrol and diesel prices are reviewed on day-to-day basis.

The projection for gross domestic product (GDP) is 7.5-7.6 in first half and 7.3-7.4 in the second half.

RBI retains GDP growth projection at 7.4 per cent for 2018-19.

“The resulting pick-up in the momentum of inflation excluding food, fuel and HRA has imparted persistence into higher CPI (Consumer Price Index) 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 first half and 4.4 per cent in second half, which included the HR impact for central government employees. 

(With inputs from agencies)