The six-member monetary policy committee of RBI headed by governor Urjit Patel has hiked the repo rate by 25 basis points to 6.25 percent. While the reverse repo rate has been adjusted to 6 percent.
Notably, this is a first-time hike in policy rate done by the central bank since Narendra Modi led BJP government has come into office in may 2014.
Meanwhile, RBI has allowed 2 percent more SLR (Statutory liquidity ratio) to meet liquidity coverage ratio.
In its official statement, RBI said that “it reiterates its commitment to achieving the medium-term target for headline inflation of 4 percent on a durable basis.”
With inflation concerns floating, some analyst had expected RBI to switch its stance to tighten on Wednesday. On the other hand, RBI raised its inflation projection for second fiscal of 2018-19 to 4.7 percent from 4.4 percent.
Worries over inflation have elevated following a sharp increase in global oil prices and the weakening of Indian Rupee. At the same time, a potential rise has been witnessed in consumer spending as India’s economy has expanded at 7.7 percent in Jan-March quarter.
Interestingly, RBI’s rate decision has come just a week before Fed policy meeting that is widely expected to raise U.S interest rates.