The Reserve Bank of India (RBI) hiked short-term lending and borrowing rates by 25 basis points each. Now the repo rate will be 6.50 % while the reverse repo, the rate banks receive for depositing funds with the central bank will be 5.50 %. It has also extended the additional liquidity facility to bank till April 8, 2011.
These hike in rates are aimed at checking prise rise while retaining the growth momentum, RBI said while raising the year-end inflation projection to 7 percent and retaining the economic growth forecast for the financial year at 8.5 percent.
Oriental Bank of Commerce Executive Director S.C. Sinha said, “The policy rate hikes will not result in immediate increase in lending and borrowing rates of banks as this has already been factored in by the market given high inflationary pressures”.
The RBI will constantly monitor the credit growth, and if necessary, will take necessary steps, according to third quarter monetary policy review.
Though there is chance that the hiked rate may lead to costlier home, auto and loans to corporate. The BSE sensex also found to dip below 19K due to hike in key rates.
The Reserve Bank projected an economic growth of 8.5 percent with an upside bias. It also warned that inflation is a matter of concern and revised its projection for financial year 2011 to 7 percent to 5.5 percent earlier.
The central bank in 2010 raised the key policy rates six times to contain inflation which shot up to 8.43 percent in December on high prices of food items, from 7.48 percent in November.
While the food inflation for the week ended January 8 stood at 15.52 percent. It had increased to 18.32 percent in the end of December on high prices of vegetables, including onion.
RBI asserted that asserted the monetary action was aimed at controlling rising inflationary expectations, while at the same time being moderate enough not to disrupt growth. It is also aiming to provide comfort to banks' liquidity management operations.
Ref: TOI