The Reserve Bank of India (RBI) on Wednesday decided to increase the policy repo rate by 25 basis points to 6.5%. The reverse repo rate has been hiked to 6.25%, the RBI announced after its three-day Monetary Policy Committee (MPC) meeting.
"RBI's Monetary Policy Committee has decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.5% Consequently, the reverse repo rate under the LAF stands adjusted to 6.25% and marginal standing facility rate and Bank Rate to 6.75%," the apex bank said in a statement.
The decision by the 6-member MPC, headed by RBI Governor Urjit Patel, comes amid elevated oil prices and inflation hovering around 5%.
Five of the six members on the rate panel voted for a rate increase, Reuters reported.
Ahead of the three-day meet, which started on Monday in Mumbai, experts were divided in their opinion if the RBI would hike the key rates.
RBI had increased the benchmark short term lending rate (repo rate) by 0.25% to 6.25% in its last policy review in June on inflationary concerns.
The retail inflation, which is factored in by the MPC, spiked to a five-month high of 5% in June on costlier fuel.
The government has mandated the Reserve Bank to keep inflation at 4% (+/- 2%).
While crude oil prices have come off the three year high, they continue to be volatile threatening inflation and current account deficit.
Ahead of the RBI's monetary policy announcement, the country's largest lender State Bank of India (SBI) had hiked interest rate on fixed deposits by up to 0.1% on select maturities, a move likely to be followed by other banks.
The bank had last revised its interest rate on May 28, ahead of second bi-monthly monetary policy for 2018-19 announced on June 6.
(With PTI inputs)
