India hikes interest rates for first time in four years

Over the last week the BSE Sensex climbed 302.39 points or 0.87% to end at 35,227.26

Over the last week the BSE Sensex climbed 302.39 points or 0.87% to end at 35,227.26

Adding to his comments, RBI governor Urjit Patel said that forecast of normal monsoon for 2018-19 augurs well for the agriculture sector and suggested that the central bank will remain vigilant on how actual inflation unfolds.

Analysts had been divided over whether the RBI would hike rates now or wait until its next meeting in August when the monsoon would be nearly two months old. In fact, bond prices dropped and the yield on 10-year paper rose from 7.83% to 7.92% after the policy announcement.

The six policymakers were unanimous in their decision to raise the repo rate at the end of a three-day meeting of the monetary policy committee (MPC).

Mumbai: The cost of home, auto and personal loans is expected to rise after the Reserve Bank of India (RBI) surprised the Street by raising its policy interest rate - the repo - by 25 basis points to 6.25 per cent to combat inflationary pressures that have started to bubble because of higher global crude oil prices.

"However, given that the committee has maintained a neutral stance, there remains room for manoeuvrability in policy perspective should incoming data show sharp fluctuations". The Consumer price index ( CPI) had risen to 4.58 per cent in April.

The first risk to inflation that is playing out is spike in crude prices.

In a note released on late Wednesday evening, Kotak Mahindra Bank said it sees the policy decision as a reaction to the recent movement in crude prices and rupee. While the statistical impact of HRA revisions will be looked through, there is a need to watch out for any second round impact on inflation. Due to market linking of domestic fuel prices to global prices, the first-round effects are felt immediately, as is happening right now. The RBI's rate hike may have surprised some analysts, but the growth forecast of 7.5 per cent for FY19 boosted market sentiment with the sensex closing 276 points higher.

If the current trend of increasing inflation and oil prices continues, we expect another 25 bps hike somewhere during the year.

The money flow in the economy has also been in surplus, RBI reports.

Rakesh Srivastava, Director, sales & marketing, Hyundai Motor India said, "This increase will have a marginal impact on the cost of ownership but coupled with increased fuel prices and overall inflation could have profound affect".

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".

Inflationary expectations, which are generally adaptive, have also started lifting.

The increase in both retail and wholesale inflation was higher than expected in the month of April. The RBI's household inflation expectation survey for May 2018 too reports a rise in "year ahead" inflation expectations by 130 bps. India, too, has seen foreign portfolio investors pulling out $4.4 billion in the first five months of this year, leading to the weakening of the rupee which is now one of the worst performing currencies - having fallen over 6 per cent against the United States dollar this year.

Financial markets are pricing in higher interest rates.

Recommended News

  • Justify to make run for Triple Crown from Belmont rail

    Justify to make run for Triple Crown from Belmont rail

    For the fourth time in his career, trainer Dale Romans brings a horse to Belmont Park with designs on spoiling a Triple Crown bid. Nine horses are set to line up against Justify , including five he beat in the Derby and two he beat in the Preakness .
    USA  judge slammed for Brock Turner rape sentence removed by voters

    USA judge slammed for Brock Turner rape sentence removed by voters

    With nearly all precincts reporting on Wednesday, close to 60 percent of voters cast a ballot to disrobe Judge Aaron Persky . For the Recall Persky campaign, that required 90,000 signatures from Santa Clara voters and a meticulously crafted spiel.
    Apple's Siri Shortcuts app makes the assistant more customizable

    Apple's Siri Shortcuts app makes the assistant more customizable

    The FaceTime camera experience also includes filters, stickers, Animoji and Memoji as well, so everyone can take advantage of it. Bloomberg reports that Apple is planning on unveiling features for iOS that will help control collective iPhone addiction.
  • Reasons to Love Apple's iOS 12 Update

    Reasons to Love Apple's iOS 12 Update

    The first is " Screen Time ", an app that offers in-depth analysis of your iPhone and/or iPad usage. The new search functionality lets you combine multiple search terms to find the photos you want.
    Woman in fatal field crash held on $500K bail

    Woman in fatal field crash held on $500K bail

    Sharrow's attorney, Robert Ruffner, said, "When all the facts come to light, there's an underlying tragedy that can't be denied". Matthew Jones said they found no connection between Sharrow and Parkhurst and that they were "complete strangers".
    How Kate Spade Hoped to Be Remembered, in Her Own Words

    How Kate Spade Hoped to Be Remembered, in Her Own Words

    When the comedian Robin Williams also ended his life by suicide in 2014, the act seemed to become a touchstone for Spade. The brand grew into a fashion empire, known for accessories that offered affordable luxury to younger working women.
  • Jordan police: protests against price hikes under control

    Jordan police: protests against price hikes under control

    On Friday, a demonstration took place in downtown Amman with participants calling for the immediate withdrawal of the law. James Dorsey, a Middle East analyst, warned that the prime minister's departure may not be enough to satisfy protesters.
    Aide dismissive of McCain departs White House

    Aide dismissive of McCain departs White House

    Kelly Sadler has left the White House where she served as a communications aide, a senior administration official told Fox News . White House spokesman Raj Shah today said , " Kelly Sadler is no longer employed within the Executive Office of the President".
    Joe Scarborough Hits Back at Donald Trump Over Melania Tweet

    Joe Scarborough Hits Back at Donald Trump Over Melania Tweet

    Fox later tweeted that the misuse of the photos was an "error". Melania Trump has yet to address the public since her return. Watch the above video to see more of what Long had to say.
  • Stephens into first French Open quarter-final

    Stephens into first French Open quarter-final

    Unseeded Yulia Putintseva of Kazakhstan is next up for Keys after knocking off 26th-seeded Czech Barbora Strycova 6-4, 6-3. Sharapova was denied a French Open wildcard past year following her return from a 15-month ban for failing a drugs test.
    GOP leader McConnell cancels most of Senate's August recess

    GOP leader McConnell cancels most of Senate's August recess

    It could be subject to a parliamentary challenge over whether it's germane to the annual bill authorizing defense programs. Corker acknowledged the difficulty in passing legislation despite "tremendous concern" among lawmakers in both parties.
    Guatemala's Volcano of Fire erupts again, with 192 people still missing

    Guatemala's Volcano of Fire erupts again, with 192 people still missing

    Numerous victims are unrecognisable, with officials warning that DNA testing and other methods may be needed to identify them. There was no electricity in the hardest hit areas of Los Lotes and El Rodeo, so most searching continued only until sunset.

We are pleased to provide this opportunity to share information, experiences and observations about what's in the news.
Some of the comments may be reprinted elsewhere in the site or in the newspaper.
Thank you for taking the time to offer your thoughts.