RBI ups repo rate by 25 bps, cuts MSF rates by 75 bps

The Reserve Bank of India has raised repo rate by 25 bps, but has cut MSF rates by 75 bps.

The RBI's mid quarter policy review, first for its new governor Raghuram Rajan, came in as hawkish as no one was anticipating a repo rate hike.

The RBI remains focused on inflation and said it will look to unwind liquidity tightening measures even outside of policy reviews.

The repo rate now stands at 7.5 percent, MSF at 9.5 percent while CRR is left unchanged. Reacting to the announcement, the rupee fell 1 percent, bond yield rose to 8.3 percent, and share prices of banking stocks witnessed a sharp decline. Most of the economists polled by CNBC-TV18 were expecting the RBI to bring down the daily requirement to 90 percent of CRR, while a few expected it to come down below 90 percent. Jahangir Aziz of JPMorgan had opined that MSF should be brought back to its old level and instead repo rate should be hiked by about 50 bps. In a bid to control liquidity, the RBI had last month restricted banks from borrowing at 7.25 percent from the repo window. It had forced them to borrow at a higher rate of 10.25 percent from a special window called marginal standing facility (MSF).