RBI hikes repo rate by 25 basis points

NEW DELHI: The Reserve Bank of India (RBI) on Wednesday hiked repo rate by 25 basis points (bps) to 6.50 per cent. Rising trade tensions, accelerating crude oil prices, slowing economic activity, rising retail inflation were the major reasons behind the hike in repo rate.

The repo rate is the rate at which the RBI lends short-term money to the banks.

This is the first time since October 2013, where RBI has gone for a back-to-back rate hike. The central bank had increased repo rate by 25 bps to 6.25 per cent in its last policy meet in June.

Reverse repo, the rate at which the RBI borrows money from commercial banks within the country, was adjusted to 6.25 per cent.

RBI's monetary policy committee (MPC), headed by governor Urjit Patel, maintained a neutral stance towards the monetary policy. It also reiterated its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis

"Construction activity indicators also improved with cement production sustaining double digit growth for the eighth consecutive month in June. Steel consumption also accelerated in May," the central bank said in a media release.

RBI has projected inflation at 4.6 per cent in Q2, 4.8 per cent in H2 of 2018-19 and 5.0 per cent in Q1 2019-20.