IMF welcomes RBI's decision to hike repo rate to 6.25%; terms it 'appropriate step' with rising inflation, high oil prices

Washington: The International Monetary Fund (IMF) on Thursday welcomed the decision of the Reserve Bank of India (RBI) to increase the repo rate by 25 basis point to 6.25 percent. “We welcome the Reserve Bank of India’s decision to increase the policy rate by 25 basis points,” IMF Spokesman Gerry Rice told reporters during his bi-weekly news conference here.

In the context of rising inflation and additional upside risks to the forecasts due to higher oil prices, exchange rate depreciation and other domestic factors, the IMF thinks that this was an appropriate step by the RBI on Wednesday, Rice said.

He was responding to a question on the decision of the RBI to increase the interest rate for the first time in the last four years. It was in January 2014 that the RBI had increased the repo rate to eight percent to keep the inflation under check. Interest rates hiked The RBI for the first time in four-and a half-years raised the key interest rate, by 25 basis points to 6.25 per cent, on inflation concerns arising from surge in international oil prices. In the second bi-monthly monetary policy for the current fiscal, the central bank revised upwards the retail inflation range to 4.8-4.9 percent in the first half of 2018-19, and 4.7 percent in the second half. [caption id=“attachment_4133561” align=“alignleft” width=“380”]  The logo of the International Monetary Fund (IMF) at the organisation’s headquarters in Washington. AFP[/caption] It includes the impact from the house rent allowance for central government employees, with risks tilted to the upside. Excluding the impact of HRA revisions, CPI-based inflation is projected at 4.6 percent in first half of 2018-19, and 4.7 percent in H2, RBI said. RBI retained the gross domestic product growth for the financial year 2018-19 at 7.4 per cent. All six members of the Monetary Policy Committee (MPC) including RBI Governor Urjit Patel voted for a 0.25 percent repo rate hike. Earlier, in four previous policy reviews, the RBI’s six-member Monetary Policy Committee (MPC) left the repo, or short-term interest rate for commercial banks, unchanged at 6 percent, according to a RBI statement.