India’s key policy rate raised by 50 bps as widely predicted

MUMBAI (Reuters) – The Reserve Bank of India’s benchmark repo rate was raised by 50 basis points on Friday, the fourth straight increase in the current cycle, as policymakers extended their battle to tame sustained above-target retail inflation rate.

The monetary policy committee (MPC), comprising of three members from the RBI and three external members, raised the key lending rate or the repo rate to 5.90% with a five out of six majority.

The standing deposit facility rate and the marginal standing facility rate were also increased by the same quantum to 5.65%and 6.15%, respectively.

The U.S. Federal Reserve’s relentless and aggressive interest rate hikes over recent months have sent the rupee down sharply and prompted most economists to predict another 50 bps increase. The MPC has raised rates by a total 140 bps in the last three meetings, including consecutive 50 bps moves in the last two.

India’s annual retail inflation rate accelerated to 7% in August, driven by a surge in food prices, and has stayed above the RBI’s mandated 2-6% target band for eight consecutive months.

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