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RBI repo rate: RBI hikes repo rate after more than 4 years

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NEW DELHI: The Reserve Bank of India (RBI) on Wednesday decided to increase key rates following its June monetary policy meet. The Reserve Bank’s six-member MPC (monetary policy committee), headed by governor Urjit Patel, hiked the repo rate by 25 bps (basis points) or 0.25 per cent to 6.25 per cent.

The repo rate is the rate at which the RBI lends short-term money to the banks. The central bank has also increased the reverse repo rate — the rate at which the RBI borrows from commercial banks — to 6 per cent.

The hike comes in contrast to what the Street had expected. A Reuters poll had predicted that the RBI is expected to hold key rates in its monetary policy meet. The poll suggested that though an increasing number of economists expect the Reserve Bank to raise interest rates but most still think the central bank will stay on hold and use this week’s meeting to prepare for an August hike.

It was in January 2014 that the RBI had last raised the short-term lending rate (repo) to 8 per cent, since then it has either reduced it or maintained status quo.

Radhika Rao, India Economist with DBS Group, had expected hike in the short-term lending rate in June itself.

“We expect the Monetary Policy committee to sound hawkish, with a rising probability that they will vote for a pre-emptive 25 bps rate hike in June, to maintain financial stability and contain second-round inflationary impact from higher oil prices and a weaker rupee,” she said.

Indicating hardening of the interest rate scenario, several major lenders including SBI, PNB and ICICI Bank have already raised their lending rates from June 1. Some of the banks have also increased the deposit rates.

(With Reuters inputs)

Updated: June 6, 2018 — 8:25 am

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