India central bank raises rates by 25 bps as widely expected

MUMBAI  – The Reserve Bank of India’s key repo rate was raised by 25 basis points (bps) on Wednesday as widely expected, the sixth straight increase, as core inflation remained high despite signs retail inflation has peaked.

The central bank said that its policy stance remains focused on withdrawal of accomodation.

Most analysts expect this hike to be the final increase in the RBI’s current tightening cycle, which has seen it raise rates by 250 bps since May last year.

The monetary policy committee (MPC), comprising three members from the central bank and three external members, raised the key lending rate or the repo rate to 6.5 percent in a split decision.

Four of the six members voted in favour of the decision.

In a poll conducted ahead of the federal budget on Feb. 1, more than three-quarters of economists, 40 of 52, expected the RBI to raise the repo rate by 25 bps. The remaining 12 predicted no change.

The annual retail inflation rate eased to 5.72 percent in December from 5.88 percent in the previous month, falling below the RBI’s upper tolerance band of 2 percent-6 percent for a second straight month.