RBI hikes repo rate by 25 bps; house, auto loans to get costlier
Mumbai, June 6: Housing loan and auto loan will become dearer with the Reserve Bank of India (RBI) on Wednesday raising its key interest rate for the first time since January 2015.
The country's central bank -- RBI -- has raised repo rate by 25 basis points (bps) to 6.25 per cent, responding to concerns on inflation from surging global crude oil prices.
The RBI, however, maintained its 'neutral' stance on policy, as it has done over four previous bi-monthly policy reviews when it held the repo, or its short term lending rate for commercial banks, at 6 per cent. This stance allows the RBI to move either way on rates.
"The decision of the Monetary Policy Committee (MPC) is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent," the RBI statement said.
"Consequently, the reverse repo rate under the liquidity adjustment facility (LAF) stands adjusted to 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent."
Addressing the media following the policy announcement, RBI Governor Urjit Patel elaborated that the neutral stance allowed various options to the central bank and was not in contradiction to raising rates.
"The neutral stance leaves all options open... other central banks do the same, there is no contradiction here," he said in response to a query.
"We have kept the neutral stance as well as responded to the risks to inflation visible in recent months. Inflation has remained over the target level of 4 per cent for over six months," he added.
The six-member MPC voted unanimously for the rate hike that the central bank was undertaking after more than four years and comes for the first time under the Prime Minister Narendra Modi-led government.
The government was quick to laud the latest monetary policy review.
"Welcome monetary policy statement. Quite balanced assessment of growth, inflation and external situation and expectations. Rate hike understandable considering existing interest differentials and oil price movement. Should help in removing uncertainties and steadying markets," Economic Affairs Secretary S.C. Garg said in a tweet.
The RBI also revised upwards the retail inflation range to 4.8-4.9 per cent in the first half of 2018-19, and to 4.7 per cent in the second half, including the impact of house rent allowance (HRA) for central employees, and with risks on the upside.
"The April-May prints show that inflation, excluding food and fuel has hardened. Higher oil prices and input costs have added to the upside risks," RBI Deputy Governor Viral Acharya said.
"On the other hand, growth indicators show that economic revival is on sound footing. Given the inflation target of 4 per cent, it seemed the right time for the MPC to consider a hike of 25 basis points," he added.
The country's retail inflation rose to 4.58 per cent in April from a rise of 4.28 per cent in March and 2.99 per cent in the corresponding period of the previous year.
The fourth quarter estimate of Gross Domestic Product (GDP) released by the Central Statistics Office last month estimated the growth rate at 7.7 per cent, as against 5.6 per cent, 6.3 per cent and 7 per cent respectively in the first three quarters.
Recent crude oil price volatility imparts considerable uncertainty to the inflation outlook, the RBI said.
"Since the MPC meeting in early April, the price of the Indian basket of crude surged from $66 a barrel to $74. This, along with an increase in other global commodity prices and recent global financial market developments, has resulted in a firming up of input cost pressures," the statement said.
To arrive at this decision, the MPC extended its deliberations this time by an extra day.
Commenting on the development, Deloitte India Partner Anis Chakravarty said in a statement: "The RBI was cautious on the factors that could change the course of the underlying optimism, major among them being the projections on oil price movement and rising geopolitical tensions.
"However, given that the committee has maintained a neutral stance, there remains room for manoeuvrability in policy perspective should incoming data show sharp fluctuations."
Arihant Capital Markets Director Anita Gandhi said: "Recent hike in crude prices and better GDP for last quarter of FY 18 suggest inflation trajectory may be on the higher side. Though this may put some pressure on borrowers, it is positive news for the savers in the economy."
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AIITA welcomes Karnataka’s ban on obscene songs in school events
Bhatkal: The Karnataka unit of the All India Ideal Teachers Association (AIITA) has welcomed the Karnataka government’s decision to strictly ban school children from dancing to obscene songs during educational and cultural programmes in government, aided, and private schools across the state.
AIITA Karnataka State President M. R. Manvi congratulated the government for taking what he termed an important step to preserve the sanctity of education.
“Such decisions to safeguard the dignity of school children and uphold the values of education are the need of the hour. This rule should not be limited to government schools alone but must be strictly implemented in all private educational institutions as well,” he said.
He further urged the government to address other concerns within school programmes.
“The government should not only prohibit obscene dances in the name of school anniversaries, but also ensure that plays and dialogues that incite religious hatred are avoided. Schools should be centres of harmony, not platforms for spreading hatred,” he added.
According to a recent circular issued by the Department of School Education and Literacy, obscene dances are adversely affecting the mental health and moral values of students.
In this regard, schools have been advised to use songs that promote nationalism, positive thinking, the greatness of Kannada culture, and value-based traditions instead of inappropriate content during programmes.
The circular also emphasises that students should be dressed in decent attire.
AIITA also backed the department’s warning that disciplinary action would be taken against head teachers if such guidelines are violated. The association has further demanded that district Deputy Directors of Public Instruction strictly monitor the implementation of these rules.
