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).
