RBI's second 25 bps hike clear desire to frontload rate hike cycle, says SBI chairman

Over two policies now, India has seen a rise of 50 basis points in policy repo rate, with latest hike made today by RBI in the third bi-monthly monetary policy for FY19. Now policy repo rate stands at 6.50% from previous 6.25%. With this, India’s policy repo rate has reached a two year high because the last time when 6.50% mark was achieved was in 2016 April policy. Consequently, the reverse repo rate under the LAF stands adjusted to 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75%.

Talking about the policy SBI chairman Rajnish Kumar said, "The RBI decision to raise repo rate by 25 bps for the second time in succession is a clear desire to frontload the rate hike cycle."

Kumar added, "Simultaneously, the decision to keep the stance in neutral mode indicates RBI willingness to be flexible and accommodative with global growth continuing to be uncertain."

There were seven key developments also announced by RBI apart from repo rate hike. For this Kumar says," On the development front, the bouquet of measures are positive. In particular, the decision of co-origination of loans between banks & NBFCs for lending to priority sector, would be a win-win for all. 

Further, Kumar explains, "RBI has indicated to review the FEMA guidelines to allow Indian multinationals to hedge currency risks of their global subsidiaries from India. The decision of taking a comprehensive review of financial market timings will bring uniformity across products and markets." 

"The RBI’s resolve to ensure a better customer service and customer grievance redressal mechanism will further get strengthened through the proposed review of Internal Ombudsman mechanism," says Kumar. 

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However, markets which were trading on a volatile level, reacted negatively after the policy announcement. Sensex ended at 84.96 points or 0.23% at 37,521.62, while Nifty 50 finished at 10.30 points or 0.09% at 11,346.20.