RBI raises repo rate by 25 basis points to 6.25%, revises predicted GDP growth for 2017-2018 to 6.7%

The Reserve Bank for the first time in four-and-half-years raised key interest rate today by 25 basis points to 6.25 % 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 % in the first half of 2018-19, and 4.7 % 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 here.

Excluding the impact of HRA revisions, CPI-based inflation is projected at 4.6 % in first half of 2018-19, and 4.7 % in H2, RBI said.

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

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 % in H1 and 4.4 % in H2, which included the HR impact for central government employees.

Key takeaways

RBI hikes repo rate by 25 bps to 6.25%

RBI hikes reverse repo rate to 6%

Deposit repo rate hike, MPC keeps stance neutral

April-September CPI seen at 4.8%-4.9% including rent allowance impact

October-March CPI seen at 4.7% including home rent allowance impact

MPC retains FY19 GDP growth forecast at 7.4%

GDP growth projected at 7.5-7.6% for April-September

GDP growth projected at 7.3-7.4% for October-March