RBI surprises with reverse repo hike

Indicates tightening of policy, even as it maintains neutral stance; cautions on inflation

The six-member Monetary Policy Committee of the Reserve Bank of India (RBI) on Thursday kept the repo rate unchanged but raised the reverse repo rate by 25 basis points to narrow the corridor in which overnight money moves.

Economists said this was an indirect tightening of interest rates even as the policy stance remained neutral. The central bank also warned about rising inflation. Expected at 4.5 per cent in the first half of the current fiscal year, inflation could climb to 5 per cent in the second half, owing to risks and an unfavourable base effect.  

Following the policy,