Surprise repo rate hike by RBI
RBI (Reserve Bank of India) today surprised by hiking the repo rate by 25 basis points to 8% from 7.75%. However it said, if the consumer price inflation eases as projected it does not anticipate further near-term tightening.
The RBI also hiked the marginal standing facility rate by 25 basis points to 9% from 8.75%. However it kept the cash reserve ratio rates unchanged at 4%.
The policy decision was motivated by an expectation that CPI (consumer price index) inflation will remain high. This indicates that the RBI considered a recent policy rate decision on CPI target.
Bonds, stocks and the rupee tumbled after the policy rate hike. But it soon recovered most losses on the back of the pacifist statement. The benchmark 10-year bond yield which rose as much as 9 basis points following the hike, retreated entirely to continue trading down 5 bps on the day at 8.72%.
The CPI eased to a three-month low of 9.87% in December but still remains well above the RBI's policy repo rate of 7.75%. The RBI had said on Tuesday that CPI inflation risks remain to the upside. It also said that the CPI inflation is likely to stay above 9% during the fourth quarter of the fiscal year ending on March 2014. And also predicted ranging between 7.5% - 8.5% for the quarter that ends in March 2015, "with the balance of risks tilted on the upside."
RBI hikes repo rate by 25 basis point
http://www.stockmarketpulse.net/2014/01/28/rbi-hikes-repo-rate-25-basis-point/
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