Bengaluru: The Reserve Bank of India (RBI) on Wednesday raised its policy rate for the first time in more than four years, due to inflation concerns, but kept its policy stance as “neutral”.
The monetary policy committee lifted the repo rate by 25 basis points to 6.25 per cent, the first increase since January 2014, as predicted by 46 per cent of respondents in a Reuters poll this week. All six members on the rate panel voted for an increase.
The reverse repo rate was also raised by 25 basis points to 6.00 per cent. Before Wednesday, the last policy rate change was a 25 bps cut in August 2017.
Sumedh Deorukhkar, Senior Economist, BBVA, Hong Kong
“Rate hike is pre-emptive and in line with the Reserve Bank of India’s neutral-to-hawkish policy tone. The RBI has sounded more sanguine over growth prospects going forward, while flagging upside risks to inflation, particularly emanating from higher crude oil prices and the wage-price setting process due to closure of output gap.
“Expect one more rate hike before the end of calendar year 2018 if core inflation remains elevated despite some potential moderation in growth.
“Growth recovery, although uneven, remains on track. Higher rates will weigh on growth, but only with a lag. Foreign investors remain sanguine over India’s long-term growth story and the credible reform momentum over the recent years. The latest hike underscores RBI’s policy credibility in line with its inflation targeting regime.”
Tanvee Gupta Jain, Chief India Economist, UBS Securities India Pvt Ltd, Mumbai
“We were already pricing in a 40 per cent probability of a rate hike in this policy, and 50 bps rate hike in FY19.
“We do expect one more rate hike by the Monetary Police Committee over the next few months, most likely in August, if oil prices continue to remain higher.
“After incorporating a 50-bps rate hike, and also assuming there will be tax cuts to be announced, we now expect GDP growth at 7.3 per cent vs 7.4 per cent in FY19.”
