The original article could be seen here.
The Reserve Bank of India on Wednesday raised interest rates for the second straight meeting, but retained its “neutral” stance as it aimed to contain inflation while not choking growth. The RBI’s Monetary Policy Committee (MPC) raised the repo rate by 25 basis points to 6.50 percent. It is the first time since October 2013 that the rate has been increased at consecutive policy meetings.
In June, the MPC also increased the key rate by 25 bps. The reverse repo rate was also raised by 25 basis points to 6.25 percent.
Raj Mehta, Fund Manager, PPFAS Mutual Fund
"We haven’t had back to back rate hikes for 5 years now. The notable part about the MPC meeting is that they still maintain a neutral stance on the inflation. They had a neutral stance in the MPC meeting held in June 2018 as well and then they increased the repo rate by 25 bps in the next meeting itself. The dichotomy between the RBI’s words and its actions continues. They have increased the inflation target for the 2nd half of FY19 by about 10 bps i.e. at 4.8%. Whereas they have pegged the inflation at 5% for Q1FY20. They have also listed many uncertainties and its impact on the inflation like the effect of MSP on farm produce, volatility in global financial markets, staggering impact of HRA revision by State governments and will be tracked very closely.
The bond market reacted in a very subtle manner with yields going down marginally after the announcement of a rate hike. "We are away from 4 percent inflation target for some time now”, said the RBI governor and this in itself indicates an inflationary trend and we could be in for some surprises on the upside in repo rates.
The direction and the trend of interest rates will remain upwards in the near future through the quantum and the frequency of rate hikes remain uncertain. We think RBI’s statement seems more hawkish than its stance on inflation and inflationary risks."