RBI hikes policy rates by 25 bps...Maintains hawkish stance

The Reserve Bank of India (RBI) raised the key policy rates - the repo rate and the reverse repo rate - by a quarter percentage point, as it persists with its efforts to tame the inflation beast despite signs of moderation in economic growth. So, the repo rate now stands at 8.25% and the reverse repo rate now stands at 7.25%. There has been no change in the Cash Reserve Ratio (CRR), which stands at 6%. The bank rate has been retained at 6%. The Marginal Standing Facility (MSF) rate, determined with a spread of 100 bps above the repo rate, stands recalibrated at 9.25% with immediate effect. The policy action in this review is expected to reinforce the impact of past policy actions to contain inflation and anchor inflationary expectations, the RBI said in a statement.



Inflation remains high, generalised and much above the comfort zone, the RBI said. After slight moderation in July, non-food manufactured products inflation rose again in August, suggesting continuing demand pressures, it said. Global crude oil prices have remained elevated despite weakening of global recovery, the RBI added. Moreover, there is still an element of suppressed inflation. Though global oil prices have moderated, the pass-through to domestic prices remains incomplete, the RBI said.

Also, current administered electricity prices are yet to reflect increase in input prices, even as many states have initiated increases, the central bank said. Food inflation is at near-double digit levels, despite normal monsoon, underlining the fact that it is being driven by structural demand-supply imbalances and cannot be dismissed as a temporary phenomenon, the RBI said. The inflation momentum, reflected in the de-seasonalised sequential monthly data, persists, according to the central bank.