RBI hikes repo rate by 25 bps, cuts MSF

The central bank cut FY14 GDP forecast to 5% from 5.5%

In the second quarter review of the monetary policy held today, RBI hiked the repo rate by 25 bps and has cut the Marginal Standing Facility (MSF) rate by an equal quantum. Besides that, RBI also increased the liquidity provided through term repos of 7-days and 14-days tenure to 0.50% of banks NDTL from 0.25% earlier.

 

 

The central bank has also reiterated that its focus will be intended towards curbing mounting inflationary pressures and manage inflation expectations in a situation of weak growth. RBI also said that retail inflation is likely to remain around or even above 9% in the months ahead if policy action is absent.

 

“Notwithstanding the expected edging down of food inflation, retail inflation is likely to remain around or even above 9% in the months ahead, absent policy action,” said RBI in the policy statement.

 

RBI said in its Macroeconomic & Monetary Development Report released on Monday that inflation continues to be above its comfort level. RBI also agreed that growth in the second half of this financial year would be modest

 

The MSF rate was cut by 25 basis points in May. But in mid-July RBI had raised the MSF rate to 10.25 per cent from 8.25 per cent earlier in a bid to arrest volatility in the rupee against the dollar. In the mid-quarter review of the monetary policy held last month, RBI had cut the rate by 75 basis points and then earlier this month the rate was again reduced by 50 basis points. While the repo rate was cut by 25 basis points in May and then again raised by 25 basis points in the mid-quarter review of the monetary policy held in September.

 

Wholesale Price Index (WPI) based inflation stood at a seven-month high of 6.46 per cent in September, compared to 6.1 per cent in the previous month. While the Consumer Price Index (CPI) based inflation quickened more than expected to 9.84 per cent in September from 9.52 per cent a month ago.