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India central bank raises key rate 25 bps to 6.50 percent, keeps 'neutral' stance

Published 08/01/2018, 05:34 AM
Updated 08/01/2018, 05:40 AM
© Reuters. FILE PHOTO: A man checks his phone outside the RBI headquarters in Mumbai

By Swati Bhat and Suvashree Choudhury

MUMBAI (Reuters) - The Reserve Bank of India on Wednesday raised interest rates for the second straight meeting, but retained its "neutral" stance as it aimed to contain inflation while not choking growth.

The RBI's Monetary Policy Committee (MPC) raised the repo rate by 25 basis points to 6.50 percent. It is the first time since October 2013 that the rate has been increased at consecutive policy meetings.

In June, the MPC also increased the key rate by 25 bps.

The rate action was in line with a Reuters poll last week, which showed 37 of 63 economists expecting a rate increase.

"Rising trade protectionism poses a grave risk to near-term and long-term global growth prospects by adversely impacting investment, disrupting global supply chains and hampering productivity," the MPC warned in its policy statement.

Five of the six members on the rate panel voted for the rate increase.

The reverse repo rate was also raised by 25 basis points, to 6.25 percent.

© Reuters. FILE PHOTO: A man checks his phone outside the RBI headquarters in Mumbai

India's 10-year benchmark bond yield briefly rose to 7.84 percent from 7.78 percent before the announcement, but retraced to pre-decision levels. The rupee also strengthened marginally to 68.50 to the dollar from 68.54 before the announcement, but came off highs to trade at 68.58 to the dollar.

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