India reserve Bank raises repo rate to by 50 bps to 5.4%

As widely expected, the Reserve Bank of India's monetary policy committee on Friday raised the benchmark repo rate by 50 basis points to 5.4%, its third hike in a row, as it continued to act aggressively to tame inflation. A basis point is one-hundredth of a percentage point.

As global prices soared, fanned by rising oil, India's cenbank first effected a 40 basis point hike at an unscheduled meet in May. It raised the repo rate again by 50 basis point in June.

"The monetary policy committee has decided to remain focused on withdrawal of accommodation to ensure that inflation remains the target going forward, while supporting growth," Reserve Bank governor Shaktikanta Das said in Mumbai. "Accommodation" is a policy jargon that refers to expansion of money supply in the economy to boost growth.

The repo rate refers to the rate at which commercial banks borrow money by selling their securities to the Reserve Bank, while the reverse repo rate is the rate at which the central bank borrows money.

These rates are key to boosting credit and investments by businesses in the economy recovery. The MPC's review of the economy is critical for markets and general business sentiment.

After the latest three-day review, the standing deposit facility was adjusted to 5.15%, at 25 basis point below the repo rate.

India's retail inflation eased for the second month in a row but only a tad to 7.01% in June from a year ago, official data on Tuesday showed. Consumer prices, which rose 7.04% in May, continued to breach the Reserve Bank of India's upper limit of 6% for the sixth straight month.

The reserve Bank Governor said inflation remains "uncomfortably high".

The keenly watched food price index leapt 7.75% on the back of a global commodity price spiral, slightly lower than 7.97% in the previous month, the data showed. India is a net importer of edible oil, whose prices moderated in July after reaching record highs.