The Reserve Bank of India raised repo rate by 25 bps to 7.5 percent in its mid-quarter policy review.
In a statement, Reserve Bank of India said that Indian Repo Rate rose to a 7.50%, from 7.25% in the preceding month, the first hike since 2011.
The RBI Governor Raghuram Rajan, eased liquidity through a reduction in the marginal standing facility rate, at which banks borrow from the central bank, by 0.75 per cent to 9.5 per cent and eased the minimum daily maintenance of the cash reserve ratio (CRR).
Dr Rajan said concerns on the current account deficit have been mitigated by steps taken by the government and the RBI.
Also, steps have been taken to improve the environment for external financing, turning the focus to internal determinants of the value of the rupee, primarily the fiscal deficit and domestic inflation, he said.
Dr Rajan said the timing and direction of further actions on exceptional measures will be contingent upon exchange market stability and can be two-way.
Highlights of RBI’s mid-quarter monetary policy review:
- Key short-term lending rate (repo rate) hiked by 25 basis points to 7.5 per cent
- Borrowing rate for banks reduced under MSF to 9.5 per cent
- Minimum daily liquidity maintenance of CRR eased to 95 per cent from 99 per cent
- Cash reserve ratio (CRR) retained at 4 per cent
The markets reacted negatively, with the sensex tanking by about 500 points while the rupee depreciated 69 paise to 62.46 against the dollar.