RBI hikes repo rate by 50 bps as inflation battle continues

Repo is the rate at which the central bank lends short-term funds to banks. One bps is one-hundredth of a percentage point. With the latest rate hike, the repo rate now stands at 5.9%.

Announcing the policy decision, RBI Governor Shaktikanta Das highlighted the worry of the rate-setting panel on inflation and said the central bank is watching the price situation closely. Out of the six policy members, five voted in favour of a 50 bps rate hike, Das said.

There are upside risks to food prices and lower sowing has upped price pressures, Das said. “These risks to food inflation will have adverse impact on inflation expectations,” Das said.

During his address, Das refused to give any forward guidance on policy rates but said the policy decisions going ahead will be calibrated to the incoming data.

Inflation projection is retained at 6.7 per cent for the current year, Das said, adding inflation is likely to fall to 5 per cent levels by first quarter of next fiscal year. In the second half of this fiscal year, inflation is likely to remain at 6 per cent, Das said.