Repo rate hiked by 25 bps; RBI monetary policy review meet highlights Urjit Patel
The MPC resolution under the Second Bi-monthly Monetary Policy Statement for 2018-19 today decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 per cent.
RBI monetary policy review meet highlights: After three days of confabulation, members of Reserve Bank of India’s Monetary Policy Committee (MPC) today ended their dilemma and took a firm step by hiking repo rate. Till then markets appeared divided on the central bank's decision, with a small section believing it may hike rates 0.25% to keep inflation under control and global inflows into the country strong. The MPC resolution under the Second Bi-monthly Monetary Policy Statement for 2018-19 today decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 per cent. RBI monetary policy review meet highlights:
1. The reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent.
2. The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
3. The MPC decided to increase the policy repo rate by 25 basis points and keep the stance neutral.
4. The MPC also reiterated its commitment to achieving the medium-term target for headline inflation of 4%on a durable basis.
5. The MPC noted that domestic economic activity has exhibited sustained revival in recent quarters and the output gap has almost closed.
6. The panel decided that investment activity, in particular, is recovering well and could receive a further boost from swift resolution of distressed sectors of the economy under the Insolvency and Bankruptcy Code.
7. The headline inflation outlook is driven primarily by two countervailing effects. On the one hand, CPI inflation excluding food and fuel rose sharply in April over March by 80 basis points to reach an ex-HRA level of 5.3 per cent, suggesting a hardening of underlying inflationary pressures.
8. It also took note of geo-political risks, global financial market volatility and the threat of trade protectionism posing headwinds to the domestic recovery.
9. It is important that public finances do not crowd out private sector investment activity at this crucial juncture. Adherence to budgetary targets by the Centre and the States – which appears to be the case thus far – will also ease upside risks to the inflation outlook considerably, said the RBI statement.
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10. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of the decision. The minutes of the MPC’s meeting will be published by June 20, 2018. The next meeting of the MPC is scheduled on July 31 and August 1, 2018.