RBI hikes repo rate by 25 basis points; PSU Bank stocks in demand

Last Updated: Wed, Jun 06, 2018 15:32 hrs
RBI (Reuters image)

The Reserve Bank of India's Monetary Policy Committee has decided to increase the key repo rate by 25 basis points to 6.25%.  The reverse repo rate is now adjusted to 6%. It is reported that all the six members of the monetary policy committee voted in favour of a rate hike.

The central bank has decided to keep cash reserve ratio and statutory liquidity ratio unchanged at 4% and 19.5%, respectively. The bank said that despite the rate hike, its monetary policy stance remains neutral.

It was widely expected that the central bank would hold rates unchanged for now and might announce a hike a couple of months later. This is the first hike announced by the apex bank in close to five years.

The central bank has projected the country's GDP to grow 7.5% - 7.6% in the first half and 7.3%-7.4% in the second half of current financial year. For the full year ending March 2019, the bank expects GDP to grow 7.4%.

The MPC reiterated its commitment to achieving the medium-term target for headline inflation of 4% on a durable basis.

Consumer price inflation is seen at 4.8-4.9% by the end of first half of this fiscal, and expected to ease slightly to 4.7% in the October - March half. In the last meeting, the central bank projected CPI inflation to be in the range of 4.7-5.1% in the first half and 4.4% in the second half, including the HRA impact.

The central bank governor has stated that inflationary pressures have been rising in emerging economies. Saying, "both urban and rural consumption remain healthy,'' Urjit Patel adds that cost of farm outputs has risen sequentially. If the monsoon is normal and well-distributed temporally and spatially, as has been forecast by the IMD, it may help keep food inflation benign, says MPC.

Meanwhile, the stock market reacted positively to RBI's policy statement this afternoon. Though the market suffered a minor setback soon after the bank announced a 25 basis points hike in the repo rate, it bounced back swiftly and is currently trading high up in positive territory.

A few minutes before the closing bell, the BSE benchmark Sensex was up 285 points o 0.81% at 35,188.21, after advancing to a high of 35,230.54. The Nifty50 of the National Stock Exchange gained 91 points or 0.87% at 10,684.15, slightly off the day's high of 10,698.35.

PSU bank stocks are among the most impressive gainers this afternoon. Allahabad Bank is up more than 9%. Indian Bank and Union Bank of India are up 5% and 4.3%, respectively. Oriental Bank of Commerce, Syndicate Bank, Canara Bank, Andhra Bank, State Bank of India, Bank of India and Punjab National Bank are up 2.5% - 3.4%.

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