The Reserve Bank of India's key repo rate was raised by 35 basis points (bps) on Wednesday as widely expected, the fifth straight increase, with the central bank vowing there will be no let up in its fight to tame high inflation.
The monetary policy committee (MPC), comprising three members from the RBI and three external members, raised the key lending rate or the repo rate (INREPO=ECI) to 6.25% in a majority decision. Five of the six members voted in favour of the increase.
India's annual retail inflation eased to a three-month low of 6.77% in October, helped by a slower rise in food prices and a higher base effect, strengthening bets on smaller rate increases by the RBI going ahead.
"The MPC was of the view that further calibrated monetary policy action was warranted to keep inflation expectations anchored, break core inflation persistence and contain second round effects,” Das said as he announced the monetary policy committee's decision.
The focus on inflation control continues. There will be no let up in our efforts to bring inflation to more manageable levels," he added.
Investors expect at least one more rate hike in the current cycle at the next meeting.
"The statement was slightly more hawkish than perhaps expected by markets, with no indication that the central bank is coming to the end of its rate hiking cycle for now," Sakshi Gupta, principal economist at HDFC Bank said.
"We continue to expect the focus of MPC to remain in a watchful mode as uncertainties on inflation settle down. We see a possibility of another 25 bps rate hike before a prolonged pause," Upasna Bhardwaj, chief economist at Kotak Mahindra Bank said.
