RBI hikes rates for second consecutive time

The Reserve Bank of India (RBI) has hiked the repurchase rates (repo rates) for the second consecutive time on the back of inflationary pressures arising due to a hike in the minimum support price (MSP).

The Monetary Policy Committee (MPC) voted to keep its policy stance neutral, thus keeping the door open for future rate hikes.

The apex bank raised the repo rate by 25 basis points to 6.5%. RBI also raised the average inflation projection for the second half of the year to 4.8% from 4.7% in June. The central bank expects inflation to edge higher to reach 5% in the first quarter of the next fiscal year.

The six-member MPC voted in favour of the the decision by 5:1 vote. While Chetan Ghate, Pami Dua, Michael Debabrata Patra, Viral Acharya and RBI Governor Urjit Patel voted in favour of the decision, Ravindra Dholakia voted against the decision.

Earlier in June, the bank hiked the repo rate by 25 basis points (bps) to 6.25%.

With Wednesday's hike, the repo rate has reached to its highest level since October 4, 2016, when the apex bank had revised it to 6.25% from 6.5%.

The RBI move back then had come after a span of four years and was prompted by inflationary pressures arising out of a rise in crude oil prices.

The monetary policy statement has attributed the implementation of the Minimum Support Price hike as the primary factor that has stoked inflation this year.

“This increase in MSPs for kharif crops, which is much larger than the average increase seen in the past few years, will have a direct impact on food inflation and second round effects on headline inflation,” the RBI said in its policy statement.

The government had earlier fixed the MSP at 150% of the cost of production of all kharif crops.

The apex bank's rate hike also highlighted its concerns over crude oil prices as they remain on the higher side despite seeing a slight correction.