Reserve Bank again hikes Repo rate 50 bps to 5.9 percent

Reserve Bank again hikes Repo rate 50 bps to 5.9 percent.

The Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) announced a 50 basis points (bps) hike in the repo rate to 5.90 percent on September 30.

The hike was announced by RBI in a bid to bring elevated inflation back to its target.

RBI Governor Shaktikanta Das said, "Consequently, the standing deposit facility (SDF) rate is now at 5.65 percent and the marginal standing facility (MSF) rate at 6.15 percent.” The Standing Deposit Facility (SDF) is the lower band of the interest rate corridor and the MSF is the higher.

MPC retained its current bearing of remaining focused on the withdrawal of accommodation. The decisions on both the rate hike and the bearing saw a majority of five votes and dissent of one vote in the six-member MPC.

The policy decisions were largely along expected lines. After the announcement of the policy, the yield on the 10-year benchmark government bond was trading 2 basis points higher at 7.36 percent. The rupee was trading at 81.66 per dollar. This stands to be stronger than 81.85 per dollar at the previous close.

Considering the recent rate hike, the MPC has hiked the benchmark policy rate by 190 bps in the current financial year.

Das said, “The MPC was of the view that the persistence of high inflation necessitates the further calibrated withdrawal of monetary accommodation to contain second-round effects and anchor inflation expectations.”

While indicating upside risks to food prices and the spreading of cereal prices pressures spreading to other food products, Das said that the MPC had retained the projections for Consumer Price Index (CPI)-based inflation that was given earlier.

CPI inflation for the current financial year is seen at 6.7 percent, with the price gauge seen at 7.1 percent in July-September, 6.5 percent in October-December, and 5.8 percent in January-March. CPI inflation is seen at 5 percent in the first quarter of the next financial year.

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