The Reserve bank of India’s (RBI’s) monetary policy committee (MPC) has raised repo rate by 25 basis points (bps) to 6.5 per cent, Times of India has reported.
This the first time in around five years that the RBI has hiked borrowing costs at two consecutive policy meetings.
The bank has also raised inflation projection for the second half of the year to 4.8 per cent from 4.7 per cent in June. During the next quarter of the next fiscal year, the bank expects inflation can go up to 5 per cent.
The RBI has cited government’s decision to increase the minimum support price (MSP) for kharif crops as the primary factor causing increase in inflation.
“This increase in MSPs for kharif crops, which is much larger than the average increase seen in the past few years, will have a direct impact on food inflation and second round effects on headline inflation,” said RBI in its statement.
“Uncertainty around domestic inflation needs to be carefully monitored in the coming months,” the central bank has said.
It said that the the overall performance of the monsoon in the country so far augurs well for food inflation in the medium-term.
The central bank has, however, retained India’s gross domestic product growth projection for 2018-19 at 7.4 per cent.