RBI hikes repo rate, reverse repo rate by 25 bps

Dear All,

 

The Reserve Bank of India (RBI) on Thursday increased the repurchase rate (repo rate) and the reverse repurchase rate (reverse repo rate) by quarter percentage point each as part of a continuous effort to check stubbornly high inflation.

The central bank today hiked the repo rate to 6.75% from 6.50% while the reverse repo rate has been raised to 5.75% from 5.50%.

The RBI left the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) unchanged at 6% and 24%, respectively.

The March 2011 WPI inflation is now estimated to be higher at around 8%, the RBI said today.

In its Third Quarter Review on January 25, the RBI had projected year-on-year WPI inflation for March 2011 at 7%.

However, further upside risks have stemmed from high international crude prices, their impact on freely priced petroleum products, the increase in administered coal prices and pick-up in non-food manufactured product prices, the central bank said today.

The policy action in the Mid-Quarter Review is expected to continue to rein in demand-side inflationary pressures while minimising risks to growth, the Reserve Bank of India (RBI) said today.

The latest move is expected to manage inflationary expectations and contain the spillover of food and commodity prices into more generalised inflation, the RBI said in a statement.

Based on the current and evolving growth and inflation scenario, the RBI is likely to persist with the current anti-inflationary stance.

The underlying inflationary pressures have accentuated, even as risks to growth are emerging, the RBI said while hiking key policy rates by 25 basis points.

Rising global commodity prices, particularly crude oil, are a major contributor to both developments, the central bank said today.

As domestic fuel prices are yet to adjust fully to global prices, risks to inflation remain clearly on the upside, reinforced by the persistence of demand-side pressures as reflected in non-food manufacturing inflation, the RBI said.

The Union Budget for FY12 indicates some easing of demand pressures from the fiscal side, thus creating space for private investment, but this will materialise only if commitments to contain subsidies are adhered to, it said.

Measures to increase agricultural productivity, particularly in items facing structural supply-demand imbalances, will contribute to easing food inflation over time, the central bank said.

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Rohit Saxena
Phone No: 09891265905
Mail Id: rohit_9sep@indiatimes.com