RBI raises rates, stance neutral

The three-day meeting of MPC ended with the members unanimously favoring a repo rate hike of 25 basis points raising the rate to 6.25 per cent, citing rising inflationary pressure. This is for the first time in over four years that there was consensus among the MPC panelists.

The Reserve Bank of India (RBI) also increased the reverse repo rate to 6 per cent and bank rate is now at 6.50 per cent. In 2014 January repo rate was increased by 25 bps to 8.00 percent. Repo rate is the rate at which bank's borrow from RBI for their short-term funding requirement.

RBI has retained it GDP outlook at 7.4 per cent for FY19, whereas April- September GDP growth is projected at 7.5 to 7.6 per cent. Further, the central bank also hiked the CPI inflation target in the range of 4.8 to 4.9 per cent for the same period, citing the surge in crude oil prices from US$66 to 74 per barrel, currently.

Also during the policy meet, RBI hinted that it might let urban cooperative banks to convert into small finance banks and thus expand their reach.

Meanwhile, the markets opened flat and traded with range bound volatility in the first half of the session ahead of RBI policy. The second half gave a big bounce back with Nifty closing at 10,684.65, up 91.50 points or 0.86 per cent and BSE Sensex at 35,178.88, up 275.67 points or 0.79 per cent on Wednesday.