RBI hikes repo rate by 25 basis points

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SME Times News Bureau | 25 Oct, 2011
The Reserve Bank of India (RBI) continued its duel with high inflation by hiking key interest rates by 25 basis points on Tuesday -- the 13th increase since January 2010, setting the stage for auto, housing and commercial loans to become dearer once again.

However, the central bank also revised economic growth projections for the current fiscal downwards to 7.6 percent from the earlier prediction of 8 percent. The RBI, however, maintained the projection of annual inflation and said it would be at 7 percent by March 2012.

The repurchase rate, or the interest the central bank levies on short-term borrowing by commercial banks, has been raised to 8.5 percent from 8.25 percent. Automatically, the reverse repurchase rate, or interest on short-term lending, gets hiked to 7.5 percent from 7.25 percent.

The rate hikes were effected by Reserve Bank of India (RBI) Governor Duvvuri Subbarao during the second quarter review of the apex bank's monetary policy for this fiscal, amid high inflation rate that is nudging double-digit levels once again.

"The monetary policy tightening effected so far has helped in containing inflation and anchoring inflation expectations, even as both remain elevated. While the impact of past monetary actions is still unfolding, it is necessary to persist with the anti-inflationary stance," Subbarao said while announcing the measures.

Commercial banks are widely expected to pass on the interest rate burden to customers, which could made consumer and corporate loans dearer, even while raising the interest outgo on existing loans, along with a longer tenure for repayment.