RBI hikes short term rates

RBI hikes short term rates to tame inflation

The Reserve Bank has raised its short-term lending and borrowing rates by 0.25 pc and 0.50 pc respectively to bring inflation to6 pc by March 2011 from double digits now, but the move would put pressure on banks' interest rates.

In its monetary review, the central bank, however, kept its cash reserve ratio (CRR), the cash which banks are required to keep with RBI, unchanged.

The RBI raised upwards the inflation target from 5.5 percent to six percent and said that economy will grow by 8.5 percent, up from earlier projection of 8 percent, this fiscal.
The increase in short-term lending rate (repo) to 5.75 percent and short-term borrowing rate (reverse repo) to 4.5 percent will be effective immediately.

Earlier this month, RBI had hiked repo and reverse repo rates by 0.25 percent as inflation remained above 10 percent for the fifth month in succession.

Prior to this, RBI had raised thrice its key rates, since January.

"Inflationary pressures have exacerbated and become generalised with demand side pressures clearly visiblegiven the spread and persistence of inflation, demand-side inflationary pressures need to be contained," the RBI said.