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Inflation prompts India’s central bank to hike rates again

Mumbai: India’s central bank Tuesday hiked its key rates by 50 basis points each in the 11th such exercise since January 2010 to tame inflation, setting the stage for commercial banks to raise their interest on personal and corporate loans.

The repurchase rate, or the interest levied on short-term borrowing by commercial banks, has been revised to 8 percent from 7.5 percent, while the reverse repurchase rate — the interest on short-term lending — was hiked to 7 percent from 6.5 percent.

The rate hikes were effected by Reserve Bank of India (RBI) Governor D. Subbarao during the first quarterly review of the apex bank’s monetary policy for this fiscal conducted at his headquarters in Mint Road here.

While the rate hike was expected, the quantum of increase shocked the markets, which saw the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) dip to 18,722.69 points, to log a loss of nearly 150 points, or 0.8 percent over the previous close.

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