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Financial News: India Raises Key Rates For First Time Since

India Raises Key Rates For First Time Since Early 2014

06/06/2018 - 07:29:00 (RTTNews)

(RTTNews) - India's central bank raised its key interest rates, for the first time since 2014, on rising upside risks to inflation outlook amid strong economic growth.

The six-member Monetary Policy Committee of the Reserve Bank of India, on Wednesday, unanimously decided to lift the repo rate by a quarter point to 6.25 percent from 6.00 percent. The bank was widely expected to leave its rates unchanged at this meeting.

The reverse repo rate was adjusted to 6.00 percent from 5.75 percent. Despite the rate hike, the bank said the monetary policy stance remains neutral.

The committee reiterated its commitment to achieving the medium-term target for headline inflation of 4 percent on a durable basis.

Policymakers observed that a major upside risk to the baseline inflation path in the April resolution has materialized, namely, 12 percent increase in the price of Indian crude basket. In addition, global financial market developments and rise in households' inflation expectations were other risks to outlook, the bank noted.

Projected consumer price inflation for 2018-19 was revised to 4.8-4.9 percent in the first half and 4.7 percent in the second half, including the House Rent Allowance impact for government employees.

RBI Governor Urjit Patel said the bank will be cautious and remain vigilant on managing the risks to growth and inflation.

GDP growth outlook for 2018-19 was retained at 7.4 percent as in the April policy. GDP growth was projected in the range of 7.5-7.6 percent in the first half and 7.3-7.4 percent in the second half, with risks evenly balanced.

The bank expects investment activity to remain robust despite tightening of financing conditions. Global demand is expected to encourage exports, while the sharp rise in petroleum product prices is set to impact disposable incomes.

With growth strengthening and core inflation picking up, today's hike marks the start of the modest tightening cycle, Shilan Shah, an economist at Capital Economics, said. The repo rate is forecast to be hiked by a further 50 basis point to 6.75 percent over the next six months or so.

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