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RBI Raises Repo Rate to 5.5% Amid Inflation Risks
India’s central bank has made borrowing more expensive by raising an important interest rate.
It raised the rate from 5.25% to 5.5%.
This was the first increase in three years.
The bank said prices may rise because of food costs, oil prices and weather risks.
It also said India’s economy could grow faster than it previously expected.
People with some home loans may pay higher monthly instalments or take longer to repay their loans.
Banks may keep deposit rates firm, but they do not have to raise them by the same amount.
Economists quoted in the report expect more rate increases, depending on what happens to inflation and global conditions.
The Reserve Bank of India raised its repo rate by 25 basis points, from 5.25% to 5.5%, its first hike in three years.
The RBI shifted its policy stance from “neutral” to “calibrated tightening,” saying near-term rate cuts are off the table.
The central bank raised its FY27 inflation forecast to 5.2% and cited food, oil and weather risks.
The RBI increased its FY27 growth forecast to 7.1%, from 6.7%, citing services activity, employment and investment.
Floating-rate borrowers may face higher EMIs or longer loan tenures, while economists expect further rate increases.
- Who
- The Reserve Bank of India and its Monetary Policy Committee.
- What
- The RBI raised the repo rate by 25 basis points to 5.5% and changed its stance to “calibrated tightening.”
- Where
- India.
- When
- Wednesday; the article does not specify a date.
- Why
- The RBI cited inflation pressures and risks from food prices, oil, weather and geopolitical developments.
Key facts
- New repo rate
- 5.5%, up from 5.25%
- Size of increase
- 25 basis points
- Previous increase
- The first repo rate increase in three years, according to the article
- New policy stance
- Calibrated tightening, changed from neutral
- FY27 growth forecast
- 7.1%, raised from 6.7%
- FY27 inflation forecast
- 5.2%, raised from 5%
- Floating-rate loans
- More than 68% were linked to external benchmarks at the end of June
Quotes
Sanjay Malhotra
Governor of the Reserve Bank of India
“The MPC (Monetary Policy Committee) noted that the global context on account of geopolitical developments remains challenging. It further observed that in light of available data, it is clear that inflation and its outlook are not benign as they were last year, with headline CPI inflation expected to average almost 5.8 per cent in the next three quarters and core inflation projected at 4.4 per cent this financial year. In this milieu, recalibrating the policy rate is imperative.”
telegraphindia.com
“We expect cumulative rate hikes by the central bank to the tune of another 50-75 basis points over the next few months. The risk of a more aggressive rate hike cycle hinges on whether the current West Asia conflict and rise in oil prices continue to linger on for longer.”
telegraphindia.com
Sources
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