The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Wednesday unanimously raised the repo rate by 25 basis points to 5.50%, from 5.25%.
The MPC also shifted its monetary policy stance to ‘calibrated tightening’.
Following the decision, the Standing Deposit Facility (SDF) rate was adjusted to 5.25%, while the Marginal Standing Facility (MSF) rate and bank rate were raised to 5.75%.
Malhotra said the inflation outlook for the near term remains tilted towards the upside because of continuing supply-side pressures.
He pointed to geopolitical tensions and a weak monsoon associated with El Nino as some of the factors that could add to supply-side pressures and influence the inflation trajectory.
The MPC said monetary policy primarily works by limiting the impact of second-round effects on inflation.
RBI Governor Sanjay Malhotra said it remains difficult to separate second-round inflationary effects from the indirect impact of supply-side pressures, particularly those arising from higher production costs for energy and other inputs, as both factors are reflected in the available indicators.
