The Reserve Bank of India increased the repo rate by 25 basis points, for the second consecutive time, to 6.50 percent in its August bi-monthly monetary policy announced on Wednesday. The reverse repo rate was also raised by 25 basis points, to 6.25 percent.
The monetary policy committee of the central bank, which determines the policy interest rate cited inflation concerns for its decision but retained its "neutral" stance.
One basis point is a hundredth of a percentage point.
The repo rate is the rate at which the central bank of the country lends funds to the commercial banks. The commercial banks borrow funds only if they witness a shortfall in their funds.
The monetary policy committee of a country uses the reverse repo rate as a tool to control the money supply in the country.
Among the Monetary Policy Committee panel members, Dr Chetan Ghate, Dr Pami Dua, Dr Michael Debabrata Patra, Dr Viral V Acharya and Dr Urjit R Patel voted in favour of the decision while Dr. Ravindra H Dholakia voted against the decision.
The CNBC-TV18 poll had suggested a close call in the decision to raise or pause the key policy rates. Sixty percent of the economists polled believed that there may be a 25 basis points (bps) rate hike, while the remaining expected a status quo.
Ninety percent of the respondents polled by CNBC-TV18 had said that there will be a 25 bps raise this calendar year.
Two reasons were stated by economists for the RBI to increase the rates - one, core inflation, which is the non-food, non-oil inflation, quickened to 6.4 percent in June and the second, is the government decision on increasing the minimum support price (MSP) for kharif crops to support farmers.
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