RBI raises repo rate by 25 bps to 8%

NEW DELHI: In a surprise move, the Reserve Bank of India (RBI) on Tuesday raised the repo rate to 8%. The move from the RBI governor Raghuram Rajan came as a surprise to most market analysts.

The RBI, however said that any near term tightening is not expected. According to RBI, the rate hike is in line with the indications given earlier. "Inflation excluding food and fuel has been high. Rate hike will set economy on the disinflationary path," ," said Rajan after the review.

Meanwhile, a sell-off in emerging market currencies on concerns that growth in China is slowing and that the US Federal Reserve could further wind back its monetary stimulus when it announces its two-day meeting outcome on Wednesday may keep the Indian rupee under pressure.

Rajan faces the daunting challenge of reviving an economy growing at a decade low of around 5 percent while battling persistently rising prices, much of which has been fuelled by supply-side shortages beyond the control of monetary policy.

A Reuters poll conducted last week showed that 45 of 50 economists expected the repo rate to be kept unchanged at the meeting and held steady until September before being cut by 25 basis points in the last quarter.

The results of the poll were received before the RBI released its report on revamping monetary policy.