The Reserve Bank on Tuesday hiked its key short-term lending and borrowing rates by 25 basis points each with immediate effect to rein in inflation, a move that could increase banks' commercial lending rates.
Accordingly, the short term lending rate or (repo rate) stands at 6.25 per cent and the borrowing rate (reverse repo) at 5.25 per cent. The RBI has, however, left the cash reserve ratio or bank rate, which is the amount of cash that banks have to park with the central bank to maintain prudential norms, unchanged at 6 per cent.
"These changes will be with immediate effect," the Reserve Bank said while announcing the second quarter monetary policy review here today. After announcing the latest round of rate hikes, which is the sixth since February this year, it said further rate action is relatively low in the immediate term, indicating that its consistent efforts at combating inflation has begun to bear fruits, even though this is still at a higher level.
So far, RBI has hiked the repo rate by 125 basis points (bps) — one basis point is 0.01 per cent - and the reverse repo by 175 bps, while it spiked the CRR by 100 basis points in two installments to tame inflation and to normalise the easy monetary and fiscal policies which were initiated by the RBI and government following the global financial crisis in September 2008.