The Reserve Bank of India (RBI) hiked its repo rate by 0.25 per cent to 8 per cent. The move according to the RBI is to dampen inflation, saying it was now better prepared to deal with the risk of major capital outflows roiling emerging economies. RBI, however, said that if retail inflation eases as projected, it does not foresee further near-term monetary policy tightening.
The 25-basis-point rate hike was driven by expectations of high but moderating consumer price index (CPI) inflation, an indication the central bank intends to adopt a recent proposal to base its rate decisions on a CPI target. RBI said economic growth was likely to fall short of its earlier projection of 5 per cent this fiscal year and improve to 5-6 per cent in the year that starts in April.
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