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Financial News: India's Central Bank Lifts Rate For Second Straight

India's Central Bank Lifts Rate For Second Straight Meeting To Combat Inflation

08/01/2018 - 08:52:00 (RTTNews)

(RTTNews) - India's central bank lifted its key interest rate for the second straight meeting to keep a lid on inflation expectations amid robust economic growth.

The Monetary Policy Committee of the Reserve Bank of India governed by Urjit Patel decided to lift the repo rate by a quarter-point to 6.50 percent from 6.25 percent, the bank said in a statement on Wednesday.

Consequently, the reverse repo rate was adjusted to 6.25 percent from 6.00 percent. The bank had raised the rate at its June meeting by 25 basis points, which was the first increase since 2014.

Nonetheless, the bank said the decision was consistent with the neutral stance of monetary policy.

Five members of the MPC voted for a rate hike, while Ravindra Dholakia was the sole dissenter.

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

According to MPC, the inflation outlook is likely to be shaped by several factors. Inflation is projected at 4.8 percent in the second half of 2018-19, up from the previous forecast of 4.7 percent.

In June, inflation accelerated to 5 percent, which was well above the medium-term target of 4 percent, as the currency remained weak amid higher oil prices.

The RBI said uncertainty around domestic inflation needs to be carefully monitored in coming months. Higher government support price also poses upside risk to inflation. The central bank said various indicators suggest that economic activity has continued to be strong. GDP growth projection for 2018-19 was retained at 7.4 percent.

"Rising trade protectionism poses a grave risk to near-term and long-term global growth prospects by adversely impacting investment, disrupting global supply chains and hampering productivity," the bank said.

The swiftness with which the central bank has responded to the jump in inflation should prevent the need for very aggressive policy changes in the future, Shilan Shah, an economist at Capital Economics, said.

The economist expects only one more 25 basis point rate hike in this cycle, and that most likely before the end of the year.

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