MUMBAI:
The Reserve Bank of India on Wednesday raised its benchmark repo rate by 25 basis points to 5.5 per cent, the first increase in nearly four years, as rising inflationary pressures prompted the central bank to shift towards a tighter monetary policy.
The RBI also changed its policy stance to âcalibrated tighteningâ, signalling that further rate increases could be considered if inflationary pressures persist. Governor Sanjay Malhotra said inflation expectations were rising and price pressures were becoming broader.
Consumer inflation rose to 4.82 per cent in August, remaining above the RBI’s 4 per cent target for the third consecutive month. Higher fuel and food prices have contributed to the increase.
Despite the tightening, the RBI retained an optimistic view of India’s growth prospects. It raised its GDP growth projection for the current financial year to 7.1 per cent, while the April-June quarter recorded 7.8 per cent growth.
The rate hike is expected to increase borrowing costs for banks and consumers, potentially affecting home, vehicle and personal loans. The RBI’s decision comes against the backdrop of surging global oil prices linked to the Iran conflict and concerns over weak monsoon rains associated with El Niño.