The annual retail inflation rate eased to 5.72% in December. (Representative)
New Delhi:
The Reserve Bank of India raised its key repo rate by 25 basis points on Wednesday as expected but surprised markets by opening the door for more tightening, saying core inflation remained high.
The central bank said its policy stance remains focused on housing withdrawal.
Most analysts expected Wednesday to be the last hike in the current tightening cycle from the RBI, which has seen rates rise 250 bps since May last year.
The Monetary Policy Committee (MPC), comprising three members from the central bank and three outside members, in a split decision raised the key lending rate or repo rate to 6.50%.
Four of the six members voted in favor of the decision.
“The global economic outlook no longer looks as grim as it did a few months ago. Growth prospects in major economies have improved, while inflation is on the downside, though still well above target in major economies. The situation remains fluid and uncertain has happened,” RBI Governor Shaktikanta Das said while announcing the rate decision of the Monetary Policy Committee.
In a survey conducted ahead of the Union Budget on February 1, more than three-quarters of economists, 40 out of 52, expected the RBI to raise the repo rate by 25 bps. The remaining 12 predicted no change.
Annual retail inflation eased to 5.72% in December from 5.88% in the previous month, falling below the RBI’s upper tolerance band of 2%-6% for the second consecutive month.
But Das said core inflation remained high, and further measured policy action was necessary.
“The stability of core or underlying inflation is a matter of concern. We need to see a decisive correction in inflation,” he said.
The Indian rupee corrected marginally against the US dollar after the rate decision. It rose to $82.62 from $82.67 before the announcement.
Meanwhile, bond yields also rose with the benchmark bond yield rising to 7.3554% from 7.3124% before the policy decision and the previous 7.3102%.
The Nifty 50 share index was up 0.72% at 17,849.85 at 10:06 am IST, while the S&P BSE Sensex was up 0.68% at 60,695.09
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