RBI raises interest rate for first time in 4 years
Reserve Bank of India, for the first time in four-and-half-years, raised key interest rate today by 25 basis points to 6.25% on inflation concerns from a surge in international oil prices. In the second bi-monthly monetary policy, RBI revised upwards the retail inflation range to 4.8-4.9% in the first-half and 4.7% in the second-half. It includes the impact from HRA for central government employees.
With all the six members voting for an increase in policy rates, the Monetary Policy Committee raised the repo rate by 25 basis points and kept the stance neutral. 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 inflation pick-up excluding food, fuel, and HRA has imparted persistence into higher CPI projections for 2018-19. Crude oil prices have been volatile and this imparts considerable uncertainty to the inflation outlook both on the upside and the downside. In the April policy, RBI projected CPI inflation for 2018-19 to be at 4.7-5.1% in H1 and 4.4% in H2, including the HR impact.
