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RBI raises key rates by 25 bps; auto, home loans to cost more

Mumbai: Concerned over high inflation, the Reserve Bank today raised key interest rates by 25 basis points, its 12th such hike since March, 2010, making auto, home and other loans more expensive.

Following the increase, the short-term lending (repo) rate stands at 8.25 per cent and the short-term borrowing rate (reverse repo) is 7.25 per cent.

The RBI, while announcing its mid-term review of the monetary policy, kept all other rates and ratios unchanged.
“The monetary tightening effected so far by the Reserve Bank has helped in containing inflation and anchoring inflationary expectations, though both remain at levels beyond the Reserve Bank’s comfort zone,” the central bank said.
Despite the RBI increasing key rates several times since March, 2010, inflation shot up from 9.2 per cent in July to 9.8 per cent in August this year.

Going forward, the RBI said the monetary stance will be “influenced by signs of downward movement in the inflation trajectory…”

GDP growth during the first quarter (April-June) of the 2011-12 financial year moderated to an 18-month low of 7.7 per cent from 8.8 per cent in the corresponding period year ago, following a slowdown in industrial output growth during July to 3.3 per cent, the lowest in 21 months.

Highlights of RBI’s mid-quarterly review of the Monetary Policy

The following are the highlights of the mid-quarterly review of the Monetary Policy announced by Reserve Bank of India (RBI) Governor D Subbarao:

* Short term lending rate (repo) hiked by 25 basis points
(bps) to 8.25 per cent.
* Short-term borrowing rate (reverse repo) up 25 bps to
7.25 per cent.
* Cash Reserve Ratio (CRR) and bank rate left unchanged
at 6 per cent each.
* Downside risk to 8 per cent growth projection for the
financial year 2011-12.
* Inflation, which is a key risk, will guide future
policy actions.
* Inflationary pressures expected to ease towards later
half of 2011-12.
* Petrol price hike to push WPI by 7 bps, besides having
an indirect impact on inflation.
* Developments in the global economy matter of serious
concern.
* Exports growth unlikely to be sustained in the face of
weakening global demand.
* Banks on an average raised base rates to 10.75 per cent
in August from 10.25 per cent in July.
* Banks’ overnight borrowing window under Marginal
Standing Facility at 9.25 per cent rate.
* Second quarterly review of monetary policy on October

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