RBI Hikes Repo Rate By 50 Basis Points To 7.25 Pc

In an attempt to control inflation, raised the Reserve Bank of India Tuesday prepared to short term (repo rate) by 50 basis points to 7.25 percent, while reducing economic growth projection to 8 per cent for the current year.

The RBI also increased the savings rate of 50 basis points to 4 percent for a higher return to depositors as a result of high inflation, according to a report in The Economic Times. The reverse repo, the rate of bank funds the park with RBI, was raised by 50 basis points to 6.25 percent.

RBI Governor D. Subbarao has announced these measures in the framework of the annual credit policy to contain inflation, which is about 9 percent, and support economic growth in the medium term. driven parity rate of GDP growth for the fiscal year to 8 percent over the government's projection of 9 percent. The economy grew 8.6 percent in 2010-11.

The rate hike was the ninth since March 2010 and exceeded market expectations, and fears a rise of 25 basis points, although in the case of stronger action has been building for general inflation in March has reached approximately 9 percent.

The central bank said the high prices of oil and other raw materials, and the cumulative effect of the measures will lead to moderate growth of around 8 per cent of the current financial year, assuming normal summer monsoon and the world price of crude oil $ 110 per barrel.

"The current rate of inflation has significant risks for future growth," said Reserve Bank of India Governor Duvvuri Subbarao on annual monetary policy statement from the bank.

"The action, therefore, even at the expense of some growth in the short term, should have priority," he said. Under a new arrangement, the interest rate the central bank is independent of frequency ranging from politics, and the repo rate, at which the RBI absorbs excess liquidity is indexed to 100 basis points below the repo rate , or 6.25 percent higher on Tuesday after.

The RBI said it expects inflation to remain elevated near Mars in the first half of the fiscal year that began in April, before falling in the second half and set a goal of 6 percent inflation, with a bias up to the year end in March 2012.

Subbarao said that maintaining price stability is needed to support growth in the medium term. "The persistence of high rates of inflation increase the risks of inflation expectations out of whack," said Subbarao. the third largest economy in Asia grew about 8.6 percent in the year ending March 2011.