RBI hikes key policy rates
In a move to tame the inflationary pressures, the Reserve Bank of India (RBI) hiked the rate at which banks borrow from it (repo rate) and the rate at which it pays banks which parked their funds with it (reverse repo) by 0.25 per cent but these are unlikely to impact housing, personal and auto loans immediately.
Mr Indranil Pan, chief economist at Kotak Mahindra Bank, said “I feel RBI wanted to hike rates by 50 basis points but didn’t want to do it in one go. It appears to be more hawkish than one thought. But it shows its confidence in the economy and the demand side pressures.”
Ms Shubhadha Rao, an economist with YES Bank, said she would lean more towards the view that there could be another 25 basis point hike on July 27 because by then the RBI would get a clearer picture of the monsoon, industrial growth and inflation. She said banks would now have to take a call on timing of interest rate hikes and will take their cues from the RBI.
The RBI in its reasons for the hike said that the economy was doing well on all prarametres, however, food prices remained at elevated levels. More importantly the prices of non-food manufactured goods and fuel items have accelerated and the recent increase in fuel prices will have an immediate impact of around one percentage point on WPI inflation, it said.
Reacting to the rate hike, the finance minister, Mr Pranab Mukherjee, said, “These measures are desirable given that food inflation has risen and credit situation is tight.”
Mr Mukherjee also expressed satisfaction over the fact that RBI did not raise the cash reserve ratio (CRR), the portion of amount that banks are required to keep with the central bank.
“It is good that Reserve Bank of India has not raised CRR,” the finance minister said.
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