Mumbai, October 7: The Reserve Bank of India on Wednesday raised its benchmark repo rate by 25 basis points to 5.5%, marking its first rate increase in nearly four years as inflationary pressures strengthened amid higher oil prices and firm economic growth.
The six-member Monetary Policy Committee voted unanimously in favour of the increase and changed its policy stance from “neutral” to “calibrated tightening”.
RBI Governor Sanjay Malhotra said the timing and extent of any further tightening would depend on incoming inflation and growth data.
The move was broadly in line with market expectations, with nearly 60% of economists surveyed in a Reuters poll having forecast a 25-basis-point increase.
The RBI expects headline consumer inflation to average nearly 5.8% over the next three quarters, reflecting pressures from higher global energy prices and domestic food conditions.
At the same time, the central bank raised its economic growth forecast for the current financial year to 7.1%, up 40 basis points from its earlier projection.
The RBI did not announce additional measures, such as an increase in reserve requirements, to absorb excess liquidity from the banking system.
Instead, the central bank said it would use an appropriate mix of liquidity-management tools. The RBI has already used measures including bond sales, longer-term foreign-exchange swaps and variable rate reverse repo operations.
Banking system liquidity remains in substantial surplus, although Malhotra said the excess is expected to decline towards the end of the financial year.
The rate increase comes as India joins a broader global tightening cycle driven by renewed inflationary pressures, higher energy prices and tighter financial conditions.
Following the policy announcement, Indian government bond yields edged higher, while the rupee remained near record-low levels against the US dollar.
