After nearly two years, the Reserve Bank of India (RBI) has partly come full circle on interest rates. In a surprise move on Wednesday, its Monetary Policy Committee (MPC) unanimously voted to hike the benchmark repo rate by 40 basis points (bps) to 4.4 percent with immediate effect in an off-cycle meeting.
The rate setting panel, however, decided to remain accommodative even as it said it will focus on gradual withdrawal of liquidity to tame inflation while supporting growth. In line with the objective of policy normalisation, the central bank increased the cash reserve ratio (CRR) by 50 basis points to 4.5 percent with effect from May 21, which will drain out close to Rs 87,000 crore from the system.