RBI repo rate by 50 bps, CRR by 25 bps
The RBI raised its key lending rate for the third time in two months, taking it to its highest in seven years to quell price pressures, dampen demand and keep inflation expectations in check.
By ET Online |
MUMBAI: The RBI raised its key lending rate for the third time in two months on Tuesday, taking it to its highest in seven years to quell price pressures, dampen demand and keep inflation expectations in check.
The RBI raised the short-term lending rate, known as the repo rate, by 50 basis points to 9.0 per cent as expected, after increases totalling 75 basis points in June.
The Reserve Bank of India also said it was raising the cash reserve ratio, the amount of funds banks must keep on deposit with it, by 25 basis points to 9.0 per cent to absorb surplus cash in the banking system. The increase will take effect on August 30.
"Bringing down inflation from the current high levels and stabilising inflation expectations assumes the highest priority in the stance of monetary policy," the RBI said in its quarterly review.
India's inflation, as measured by wholesale prices, stood at almost 12 per cent in mid-July and has more than doubled since late February.
It accelerated into double digits after a sharp increase in government-set retail fuel prices in June, prompting the RBI to resume interest rate increases after a pause of more than a year.
The RBI left the reverse repo rate, the rate at which it absorbs excess cash from banks, steady at 6.0 per cent. The bank rate, used by banks to price long-term loans also remained at 6.0 per cent.
Seven out of 11 economists polled last week expected an increase in the lending rate from 8.50 per cent to curb underlying demand pressures. Only four expected an increase in the cash reserve ratio at Tuesday's review.
The RBI raised the short-term lending rate, known as the repo rate, by 50 basis points to 9.0 per cent as expected, after increases totalling 75 basis points in June.
The Reserve Bank of India also said it was raising the cash reserve ratio, the amount of funds banks must keep on deposit with it, by 25 basis points to 9.0 per cent to absorb surplus cash in the banking system. The increase will take effect on August 30.
"Bringing down inflation from the current high levels and stabilising inflation expectations assumes the highest priority in the stance of monetary policy," the RBI said in its quarterly review.
India's inflation, as measured by wholesale prices, stood at almost 12 per cent in mid-July and has more than doubled since late February.
It accelerated into double digits after a sharp increase in government-set retail fuel prices in June, prompting the RBI to resume interest rate increases after a pause of more than a year.
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The RBI left the reverse repo rate, the rate at which it absorbs excess cash from banks, steady at 6.0 per cent. The bank rate, used by banks to price long-term loans also remained at 6.0 per cent.
Seven out of 11 economists polled last week expected an increase in the lending rate from 8.50 per cent to curb underlying demand pressures. Only four expected an increase in the cash reserve ratio at Tuesday's review.
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