Key repo rate raised 50 bps to 5.40
Inflation seen above RBI tolerance level in Q2, Q3
Economists see more rate hikes in coming months

MUMBAI, Aug 5 Reuters The Reserve Bank of India39;s key policy repo rate was raised by 50 basis points on Friday, the third increase in the current cycle to cool stubbornly high inflation that has remained above the central bank39;s tolerance band for six straight months.

With June retail inflation hitting 7, economists polled by Reuters had expected the third rate hike in four months, but views were widely split between a 25 bps to a 50 bps increase. 

The monetary policy committee MPC raised the key lending rate or the repo rate to 5.40.

Inflation is projected to remain above the upper tolerance level of 6 through the first three quarters of 202223, entailing the risk of destabilising inflation expectations and triggering second round effects, the MPC said in its statement.

The Standing Deposit Facility rate and the Marginal Standing Facility Rate were adjusted higher by the same quantum to 5.15 and 5.65, respectively.

The RBI caught markets off guard with a 40 bps hike at an unscheduled meeting in May, followed by a 50 bps increase in June, but prices have shown little sign of cooling off yet.

With inflation staying elevated more rate hikes are all but inevitable in coming months, economists say. 

The RBI today raised the repo rate by 50 bps to 5.40 as we had anticipated, and struck a relatively hawkish tone despite…