Higher interest on fixed deposits for NRIs after RBI rate hike

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"RBI's Monetary Policy Committee has made a decision to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.5% Consequently, the reverse repo rate under the LAF stands adjusted to 6.25% and marginal standing facility rate and Bank Rate to 6.75%", the apex bank said in a statement.

Earlier in June, the Central bank had hiked the interest rates by 25 basis points. Reverse repo - the rate at which the RBI borrows money from commercial banks within the country - is adjusted to 6.25 per cent.

In June, the repo rate was raised for the first time in over four years, by 25 basis points to 6.25 per cent.

Ahead of the three-day meet, which started on Monday in Mumbai, experts were divided in their opinion if the RBI would hike the key rates.

This is the first time since October 2013 that the RBI has hiked its lending rate at two consecutive meetings. This is likely to lead to an increase in the interest bank customers pay on loans, be it home loan, vehicle loan or personal loan. The apex bank has, however, retained its "neutral" stance.

Notwithstanding the neutral stance, a final rate hike of 25 bps towards the end of FY2019 should not be ruled out, given that the MPC's inflation projection for Q1 FY2020 of 5 percent, is well above the medium-term target of 4 percent.

Among the Monetary Policy Committee panel members, Dr Chetan Ghate, Dr Pami Dua, Dr Michael Debabrata Patra, Dr Viral V Acharya and Dr Urjit R Patel voted in favour of the decision while Dr. Ravindra H Dholakia voted against the decision. The projected inflation rate is above its targeted comfort level of 4 per cent.

The RBI said the inflation outlook is likely to be shaped by the minimum support prices (MSPs), which have been raised sharply, elevated crude oil prices, and reduced Goods and Services Tax (GST) rates on several goods and services. Reports suggest that RBI has kept the GDP forecast for the current fiscal unchanged at 7.4%.

The headline and core (excluding food and beverages and fuel and light) CPI inflation had risen to a five-month high 5 percent and a 47-month high 6.4 percent, respectively, in June 2018.