In line with the expectation of analysts, the Reserve Bank of India (RBI) today raised its policy interest rate for the second time, as the repo rate by 25 bps to 7.75 per cent and reverse repo rate by 25 basis point to 6.75 percent in the second quarter review of the Monetary Policy.
It warned that inflation is likely to remain elevated for the rest of the fiscal year, and rolled back an emergency measure put in place to support the slumping rupee. Mr Raghuram Rajan, an RBI Governor said with the rupee having stabilised, the RBI lowered its Marginal Standing Facility (MSF) rate a further 25 bps to 8.75 percent, which eases liquidity in the banking system and returns the gap between the repo and MSF rates to the usual 100 basis points.
Besides that, RBI also increased the liquidity provided through term repos of 7-days and 14-days tenure to 0.50 percent of banks NDTL from 0.25 percent earlier.
RBI has also reiterated that its focus will be intended towards curbing mounting inflationary pressures and manage inflation expectations in a situation of weak growth. RBI also said that retail inflation is likely to remain around or even above 9 percent in the months ahead if policy action is absent. Notwithstanding the expected edging down of food inflation, retail inflation is likely to remain around or even above 9 percent in the months ahead, in the absence of policy action, RBI governor said.