Reserve Bank of India hikes key rate 25 bps to 6.50 percent

The committee raised the repo rate by 25 basis point to 6.5 percent.

Repo rate is the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds.

The committee maintained its stance as 'neutral'.

The central bank had hiked interest rates by 25 basis points in June.

In a statement, the RBI said it is increasing 'the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.5 percent."

"Consequently, the reverse repo rate under the LAF stands adjusted to 6.25 percent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75 percent," the bank said.

This is now the first time since October 2013 that the central bank has raised the repo rate at two consecutive policy meetings.

Speaking on GDP growth, the RBI Committee said: "In the second bi-monthly resolution of 2018-19, CPI inflation for 2018-19 was projected at 4.8-4.9 percent in H1 and 4.7 percent in H2, including the HRA impact for central government employees, with risks tilted to the upside. Excluding the impact of HRA revisions, CPI inflation was projected at 4.6 percent in H1 and 4.7 percent in H2."

"Actual inflation outcomes have been slightly below the projected trajectory as the seasonal summer surge in vegetable prices has remained somewhat muted in comparison with its past behaviour and fruits prices have declined," it said.

The committee kept the GDP growth projection for 2018-19 at 7.4 percent.

"Based on an overall assessment, GDP growth projection for 2018-19 is retained, as in the June statement, at 7.4 per cent, ranging 7.5-7.6 per cent in H1 and 7.3-7.4 per cent in H2, with risks evenly balanced; GDP growth for Q1:2019-20 is projected at 7.5 per cent," said the statement.