The Reserve Bank of India (RBI) on Wednesday increased the policy repo rate by 50 basis points to 4.9 percent, the second hike in five weeks aimed at quelling the inflation.
RBI Governor Shaktikanta Das in a press conference said that the MPC vote was unanimous and has decided to keep stance withdrawal from accommodative.
The decision was taken during a three-day meeting of the RBI's Monetary Policy Committee (MPC) to review the interest rates in the country.
"The MPC voted unanimously to increase the policy repo rate by 50 bps to 4.90 per cent," Das said as reported by ANI.
"Consequently, the standing deposit facility - the SDF rate - stands adjusted to 4.65 per cent and the marginal standing facility - MSF rate and bank rate - to 5.15 per cent," he said.
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Last month, in its off-cycle monetary policy review the central bank hiked the policy repo rate by 40 basis points or 0.40 per cent to 4.4 per cent. This was the first increase in the policy repo rate in nearly two years. The repo rate is the interest rate at which the RBI lends short-term funds to banks.
Inflation has been above the RBI's 2-6 per cent target band since the beginning of this year, the report said.
As per the latest available data, India's Consumer Price Index (CPI) based inflation surged to an eight-year high of 7.79 per cent in April. It has been above 6 per cent since January 2022.
Consumer Price Index (CPI) inflation in April 2022 is the highest since May 2014, when it stood at 8.33 per cent.
Bank of America Securities said in a research note that the retail inflation is likely to be around 7.1 per cent in May. CPI-based inflation is likely to average 6.8 per cent during the current financial year, Bank of America Securities said.
In April, the RBI revised upward the inflation forecast for the current financial year to 5.7 per cent from its earlier projection of 4.5 per cent announced in February.
According to Bank of America Securities, the RBI is likely to further raise its inflation expectation for the current financial year to 6.5 per cent. The RBI is likely to do this upward revision in inflation projection either next week or in August.