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RBI meets today to decide on interest rate

The markets are pricing in two more interest rate hikes by the RBI over the next year, but the committee will have to decide whether to increase the repo rate now or wait for more details about the effect of higher farm support prices on inflation.

business Updated: Aug 01, 2018 13:12 IST
HT Correspondent
HT Correspondent
Hindustan Times, New Delhi
RBI monetary policy,RBI,Rate cut
The central bank had increased the policy interest rate by a quarter of a percentage point to 6.25 per cent in June. That was the first time the RBI had raised interest rates since 2014.(REUTERS File)

The Reserve Bank of India’s monetary policy committee (MPC) will on Tuesday decide after a three day bi-monthly review meeting whether or not to increase interest rates to tame rising inflation.

The central bank had increased the policy interest rate by a quarter of a percentage point to 6.25 per cent in June. That was the first time the RBI had raised interest rates since 2014.

The markets are pricing in two more interest rate hikes by the RBI over the next year, but the rate setting committee will have to decide whether to increase the repo rate, at which it lends money to banks, now or wait for more details about the effect of higher farm support prices on inflation.

The minutes of the previous MPC meeting in June were dominated by discussions about the effects of higher farm support prices as well as oil prices.

The government has since announced higher support prices for various food items. Economists at investment bank Nomura estimate that the impact of higher support prices on headline inflation will be 20-90 basis points (a basis point is a hundredth of a percentage point). The higher end of this range will take consumer price inflation within a whisker of 6%, the upper end of the RBI’s inflation target.

With global oil prices range-bound now, the worry is core inflation, which excludes energy and food prices. In June, core inflation was 5.89%.

First Published: Aug 01, 2018 13:12 IST