The Reserve Bank of India's Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, announced a 25 basis-point increase in the key policy repo rate to 5.50 percent on Wednesday, reflecting a challenging global environment.
The standing deposit facility (SDF) rate was adjusted to 5.25 percent, while the marginal standing facility range and the bank rate were set at 5.75 percent, according to the RBI.
Governor Malhotra noted that global inflation is expected to rise sharply, leading major central banks worldwide to tighten monetary policy.
This rate hike follows a prolonged period where the repo rate remained steady at 5.25 percent. The decision was influenced by several factors, including rising inflation and crude oil prices exceeding $100 per barrel amid the West Asia crisis.
The six-member MPC completed a three-day review amidst escalating domestic inflation and shifting global macroeconomic conditions.
had anticipated the first repo rate hike since February 2023, as inflation approached the 5 percent mark.
Further monetary tightening may continue in upcoming RBI MPC meetings, given these economic indicators.
According to SBI Research, the balance of risks strongly supported a 25 basis-point rate hike due to broadening inflationary pressures, worsening global macroeconomic conditions, evolving liquidity situations, and renewed global risk repricing.
Economists at SBI Research stated, "It would be prudent for us to act pre-emptively rather than be behind the curve."
Consumer Price Index (CPI) inflation rose to 4.82 percent in August from 4.45 percent in July. Moreover, strong El Nino conditions and below-normal October rainfall pose additional risks to the Rabi crop output.
Rising crude oil prices, inflation, and higher global bond yields have limited the RBI's options to maintain previous rates, leading to this decision.
