RBI repo rate hiked by 25 bps to 6.25% in a first under Narendra Modi regime

The Reserve Bank of India on Wednesday hiked interest rate by 25 basis points in its second bi-monthly monetary policy review, as the central bank sees an upward pressure on inflation owing to rising crude prices. With today's move, the repurchase (repo) rate now stands at 6.25 per cent. Consequently, the reverse repo rate stands adjusted to 6 per cent, and the marginal standing facility (MSF) rate and the bank rate to 6.50 per cent.

RBI's cash reserve ratio (CRR) continues to stand at 4 per cent, and statutory liquidity ratio (SLR) at 19.5 per cent. This is the first time under Prime Minister Narendra Modi's regime that the interest rate has been hiked. The RBI had cut interest rate by 25 basis points in August 2017. 

To put the policy action in perspective, your home, auto and other loans may just get expensive as, in all likelihood, banks will pass on the rate hike to customers.

The RBI, however, kept the policy stance neutral in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. 

The rate hike comes after GDP growth hit a seven-quarter high of 7.7 per cent in the March quarter thanks to a robust performance by manufacturing, construction and service sectors and good farm output.

The strong GDP figures helped India retain the fastest growing major economy tag.

Meanwhile, core CPI inflation surged to a four-year high of 6.1 per cent yoy in April, from 5.3 per cent yoy in March. The CPI inflation is well beyond the RBI's projected target of 5.1 per cent.