RBI hikes repo rate by 25 basis points to 6.50%, maintains neutral stance

New Delhi: The Reserve Bank of India (RBI) on Wednesday hiked repo rate the while retaining a neutral policy stance in its bi-monthly monetary policy review as it aims to strike a balance between rising inflationary pressures and still recovering growth.

The six-member monetary policy committee (MPC) of the RBI increased the repo rate by 25 basis points to 6.50 percent and the reverse repo by 25 basis points to 6.25 percent. Five of the six members on the rate panel voted for a rate increase.

RBI projected GDP growth at 7.5-7.6 percent for April-September period and retained FY'19 growth at 7.4 percent.

This is the first time since October 2013 that the central bank has hiked borrowing costs at two consecutive policy meetings. In June, the repo rate, or the benchmark lending rate, was raised for the first time in over four years, by 25 basis points to 6.25 percent.

For July-September, the RBI pegged CPI-based retail inflation at 4.2 percent which it saw firming up to 4.8per cent in the second half of the current fiscal. The projected inflation rate is above its targeted comfort level of 4 percent.

"... inflation is projected at 4.6 percent in Q2, 4.8 percent in second half (H2) of 2018-19 and 5 per cent in Q1:2019-20, with risks evenly balanced," RBI said. Excluding the HRA impact, the CPI-based inflation is projected at 4.4 percent in Q2, 4.7-4.8 per cent in H2 and 5 percent, it added.

Coutry's annual consumer inflation hit 5 percent in June.

RBI policy statement added that increased FDI flows in recent months and continued buoyant domestic capital market conditions bode well for investment activity. RBI said that activity in the manufacturing sector is expected to remain robust in Q2, though there may be some moderation in pace.