New Delhi: The Reserve Bank of India (RBI) hiked short-term lending and borrowing rates sharply by 50 basis points for the third time in three months to tame high inflation, a move that would make all personal and corporate loans more expensive.
The repo rate has been hiked by 0.50 per cent to 8 per cent and the reverse repo rate has been hiked by 0.50 per cent to 7 per cent. The CRR remained unchanged at 6 per cent.
The hike is likely to further dampen the demands for home and car loans which are already the lowest in recent months.
The RBI has also revised its fiscal-end inflation projection to 7 per cent from 6 per cent earlier.
With Tuesday's increase of 0.50 per cent, the short-term lending (repo) rate has been hiked to 8 per cent and the short-term borrowing (reverse repo) rate has also been increased by a similar margin to 7 per cent. It, however, has retained the cash reserve ratio (CRR) at 6 per cent.
"Notwithstanding signs of moderation, inflationary pressures are clearly very strong... inflation continues to be the dominant macroeconomic concern. On the basis of this assessment, it has been decided to increase policy repo rate by 50 basis points from 7.5 to 8 per cent with immediate effect," RBI Governor D Subbarao said while announcing the quarterly review of the monetary policy.
RBI maintained hawkish stance on further monetary actions, and RBI Governor D Subbarao said that inflation will continue to be the guiding factor.
"Despite good monsoon and price moderation, risk to food inflation still remains," Subbarao said.
This is the 11th time since March, 2010, that the RBI has raised the interest rate to check inflation, which is currently ruling at over 9 per cent.
The RBI's unexpected decision led to a sharp decline of over 300 points in the BSE Sensex. The 30-share Sensex fell to 18,570 after announcement of the policy, although it had opened in positive terrain.
With Additional Inputs from Agencies
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