The Reserve Bank of India hikes rates
The Reserve Bank of India raised two of its key interest rates 25 basis points on Wednesday.
The rate hike was expected.
Wednesday's decision was not unanimous.
No RBI policy surprise
In its second policy tightening this year, the RBI lifted the benchmark policy interest rates by 25 basis points today, taking the repo rate to 6.50% and reverse repo rate to 6.25%. There was no change to the 4% reserve requirement rate for the banking sector.
However, unlike the June rate hike, today’s decision wasn’t a unanimous vote by all six policy committee members. There was one dissenter. Still, the outcome was in line with the broad consensus, including ING's forecast. Hence, we expect little to no market impact.
RBI statement in detail
- Inflation: The RBI raised its inflation forecast for the second half of FY2018-19 (financial year runs from April to March) to 4.8% from 4.7%. Although a slight rise, the statement notes that a larger than average increase in minimum support prices (MSP) for farmers will have a direct impact on food inflation and then to headline inflation. Further, inflation in items excluding food and fuel has been broad-based and has risen significantly in recent months, reflecting greater pass-through of rising input costs and improving demand conditions.
- Some relief is likely from good monsoon support to the farm sector and a reduction in Goods and Services Tax for several goods and services. But the upside inflation risks outweigh the downside risks due to supply disruptions to oil prices and elevated household inflation expectations.
- Growth: There was no change to the RBI’s GDP growth forecast for FY2019 from its 7.4% projection in the June policy statement. The statement points to evenly balanced growth risks, with good monsoon support to farm output and MSP prices contributing to improved rural demand. It also said good corporate earnings and FDI inflows would support investment. On the downside, rising trade tensions could adversely impact exports.
ING policy view
The minutes of today’s meeting to be released later this month will provide more insight into policymakers’ thinking. While we believe the current tightening cycle has further room to run, the extent of tightening will depend on how India’s growth-inflation dynamics evolve going forward.See the rest of the story at Business Insider
NOW WATCH: A diehard Mac user switches to PC
See Also:
- Melania Trump is being mocked for the outfit she wore in Michelle Obama's vegetable garden almost a year ago
- LEBRON JAMES: How the king of the NBA and the new king of Los Angeles spends his millions
- Brandless, the online store that sells everything for $3, just got $240 million to take on Amazon. Here's what it's like to use.