(LiveMint)
The Reserve bank of India’s (RBI’s) monetary policy committee (MPC) on Wednesday raised repo rate by 25 basis points (bps) to 6.5% on account of inflationary pressures arising due to hikes in minimum support prices for the crop. The six-member committee voted to maintain a neutral policy stance, thus keeping its options open for further rate hikes.
The RBI also raised its average inflation projection for the second half of the year to 4.8% from the 4.7% it had projected in June. The central bank expects inflation to edge higher to 5% in the first quarter of the next fiscal year. The policy statement also cited MSP hike as the primary factor stoking inflation this year. The government has fixed the MSP at 150% of the cost of production for all kharif crops. “This increase in MSPs for kharif crops, which is much larger than the average increase seen in the past few years, will have a direct impact on food inflation and second round effects on headline inflation,” said RBI in its policy statement.
