The Reserve Bank of India has raised the repo rate by 25 basis points (bps) to 7.75 %, in line with the expectations of most analystsl, despite the risks to an economy beset by sluggish growth. The RBI has also warned of a high inflation over the rest of the financial year, justifying the policy response.
With the rupee having stabilised, the RBI also lowered its marginal standing facility (MSF) rate a further 25 bps to 8.75 %, which eases liquidity by lowering the cost of borrowing. The BSE Sensex gained while the banking share index rose nearly 2 %. Notably, annual food inflation rose to 18.4 % in September, the highest in 3 years, propelled by soaring vegetable prices.