Vastavam web: Growing inflation concerns prompted the Reserve Bank of India (RBI) to raise its policy rate for the first time in over four years on Wednesday, but it surprised some economists by keeping its stance “neutral” instead of changing to “tighten”. The central bank’s Monetary Policy Committee (MPC) lifted the repo rate by 25 basis points to 6.25 percent – the first rate change since a 25 basis point cut in August 2017. Inflation worries have risen due to a steep spike in global oil prices and a weakening rupee, plus a potential rise in consumer spending as India’s economy expanded at a robust 7.7 percent annual pace in the January-March quarter.
“With growth strengthening and core inflation picking up, we think today’s hike marks the start of a modest tightening cycle,” said Shilan Shah, the senior India economist at Capital Economics.Following the rate decision, India’s 10-year benchmark bond yields rose to 7.93 percent – the highest levels since May 17 – from 7.83 percent before the policy statement. The rupee rose to 66.95 to the dollar from 67.05 prior to the announcement.