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RBI hikes key rates by 25 bps
The Reserve Bank hiked its key short-term lending and borrowing rates by 25 basis points each on Tuesday with immediate effect to rein in inflation, a move that could increase banks' commercial lending rates.
RBI raised interest rates for the sixth time this year on Tuesday to tame inflation, and indicated that the increase was likely to be its last in the near term.
KEY POINTS:
- Repo rate, the short-term lending rate, up 25 basis points at 6.25 percent.
- Reverse repo rate, the short-term borrowing rate, up 25 basis points at 5.25 percent.
- Cash reserve ratio, the level of deposits that commercial banks must keep with the central bank, unchanged at 6.0 percent.
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Accordingly, the short term lending rate or (repo rate) stands at 6.25 per cent and the borrowing rate (reverse repo) at 5.25 per cent.
The RBI has, however, left the cash reserve ratio or bank rate, which is the amount of cash that banks have to park with the central bank to maintain prudential norms, unchanged at 6 per cent.
"These changes will be with immediate effect," the Reserve Bank said while announcing the second quarter monetary policy review on Tuesday.
After announcing the latest round of rate hikes, which is the sixth since February this year, it said further rate action is relatively low in the immediate term, indicating that its consistent efforts at combating inflation has begun to bear fruits, even though this is still at a higher level.
So far, RBI has hiked the repo rate by 125 basis points (bps) - one basis point is 0.01 per cent-- and the reverse repo by 175 bps, while it spiked the CRR by 100 basis points in two installments to tame inflation and to normalize the easy monetary and fiscal policies which were initiated by the RBI and government following the global financial crisis in September 2008.
The RBI is upbeat about the pace of economic acceleration and has accordingly retained its projection of GDP growth at 8.5 per cent for this fiscal.
It, however, lowered the target for inflation to 5.5 per cent by the end of this fiscal from previous projection of 6 per cent.
RBI said the monetary policy is aimed at conditioning and containing inflation perception in the 4-4.5 per cent region in line with the medium-term objective of 3 per cent inflation.
Headline inflation stands at 8.6 per cent for August, while...
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