After Reserve Bank of India (RBI) raised the repo rate by 0.25% to 6.25% and the reverse repo rate to 6% from the 5.75%, Governor Urjit Patel on Wednesday said he expected both rural and urban consumption to remain healthy, and to improve further.

On Gross domestic product (GDP) growth, Patel said the Monetary Policy Committee (MPC) has decided to retain GDP growth for FY19 at 7.4% with risks evenly balanced.

Addressing a press conference after announcing the rate hike decision, Patel said manufacturing capacity utilization has increased and investment activity is expected to remain robust.

Speaking on inflation, he said that households reported a significant rise in inflation expectations for the month of May and cost of farm inputs and industrial material has risen significantly.

Accordingly, the six-member monetary policy committee of RBI has revised inflation forecast to between 4.8-4.9% in H1 and 4.7% in H2, "Taking these effects into account, the projection of CPI inflation for 2018-2019 is revised to 4.8-4.9 percent in the first two quarters of 2018-2019 and 4.7% in the second half,” he said.

Patel said headline inflation rise has been sharper than expected and remained above our comfort level of 4%.

On oil price, he said crude oil prices have been volatile recently and this imparts considerable uncertainty to inflation outlook both on the upside and the downside.

Since the MPC’s meeting in early April, the price of Indian basket of crude surged from $66 a barrel to $74.

"Financial markets have been driven mainly by monetary policy expectations and geopolitical developments. Emerging market currencies have by and large depreciated against the US dollar," he said in Mumbai.

On Insolvency and Bankruptcy Code (IBC), Patel said the investment activity could receive a further boost from swift resolution of distressed assets under the new law.

Patel said farm loan waivers have been done through budgets of individual state governments, so there is no implications on banks' non-performing assets (NPA).

Read our extensive coverage of the RBI policy meet here.

First Published:Jun 6, 2018 3:35 PM IST