Repo rate hike by RBI in line with expectations: Experts

Kolkata: The 25 basis points hike in key policy rate by the Reserve Bank of India is in “line with market expectations”, experts said on Wednesday.

The central bank has cumulatively hiked the repo rate by 250 basis points since May last year in a bid to contain rising inflation in the wake of global geopolitical tensions.

Bandhan Bank Chief Economist Siddhartha Sanyal said, “The decision of the MPC to hike the repo rate by 25 basis points is in line with market expectations. It was a choice between a pause and a 25 basis points hike with two of the six-member MPC panel showing preference for the former. This showed that the rate hike decision was more dependent on data, both internal and external.”

The RBI's six-member Monetary Policy Committee voted 4-2 to raise the benchmark repurchase or repo rate to 6.50 per cent and retain its stance of withdrawing accommodation, which was adopted early last year.

Sanyal said if inflation continued to soften in line with RBI's expectations, the MPC would be “more comfortable" moving into a long pause in the next quarter.

Shriram Life Insurance CIO Ajit Banerjee said the repo rate hike by 25 basis points was “in sync with the broad market consensus view”.

"What was probably considered (by the panel) was RBI maintaining its withdrawal of accommodation stance to ensure inflation remains within the target, while also supporting growth," he said.

The RBI projected retail inflation to ease to 5.3 per cent in the next fiscal from 6.5 per cent this year, even though core inflation remains sticky.

The RBI's inflation outlook for the current fiscal has improved from 6.8 per cent projected earlier, to 6.5 per cent, on the back of steeper than expected decline in vegetable prices and Indian basket of crude at USD 95 a barrel.