RBI hikes repo rate; cuts rupee support measures

In a surprise move, the Reserve Bank of India (RBI) Friday hiked its key policy interest rate by 0.25 percent but cut some of the measures it had announced to support the battered rupee.

In his first monetary policy review, RBI Governor Raghuram Rajan, who took charge at the Mint Street Sep 4, increased repurchase or repo rate by 0.25 percent to 7.5 percent.

The reverse repo rate is adjusted at 6.5 percent from the earlier 6.25 percent.

The RBI move will make home, auto and other loans costlier.

Cash Reserve Ratio (CRR), the proportion of money that commercial banks must keep with the central bank, has been kept unchanged at 4 percent.

The RBI reduced the marginal standing facility (MSF) rate by 75 basis points from 10.25 percent to 9.5 percent with immediate effect.

The central bank had hiked the marginal standing facility rate to 10.25 percent in mid-July to support the bruised rupee.

The minimum daily maintenance of CRR has also been reduced from 99 percent of the requirement to 95 percent effective from the fortnight beginning Sep 21, the RBI said.

"The policy stance and measures set out in this review begins the process of cautious unwinding of the exceptional measures, which will restore normalcy to financial flows," the bank said in a statement.

"They are also intended to address inflationary pressures so as to provide a stable nominal anchor for the economy, thereby mitigating exchange market pressures and creating a conducive environment for the revitalisation of sustainable growth," it said.