RBI credit policy- repo and reverse repo rates increased by 25 bps

Amidst the huge food inflation, uncertain prices of crude oil and dripping industry output, the Reserve Bank of India has now hiked the important policy prices by 25 points in the mid quarterly review today. The repo as well as reverse repo prices were hiked by 25 bps i.e. 6.75 and 5.75 percent respectively. But the Cash Reserve Ratio was unchanged at 6 percent. Basically, RBI hiked the interest rates for 8th time since March 2010.

The Reserve Bank Of India has increased the policy rates quite a few times since last March with hike of 175 points in the short term or repo lending rate and about 225 points in the short term borrowing or reverse repo rate in order to arrest inflation.

The data earlier this week highlighted that the yearly inflation accelerated to 8.31% in February from the previous month’s 8.23%, defying the forecasts of slowdown. Further, investment remains to be an issue and concern with increasing rates of interest deterring companies. Even the GDP number for 3rd quarter highlighted reduction in the investments to 29.8 percent of GDP from the position of 34.1 percent in second quarter.

Increasing concerns that the domestic demand growth might slow down, brokerages like Morgan Stanley and Citi scaled down the GGDP growth forecast recently to 7.7 percent and 8.4 percent respectively for the coming fiscal year. When comparing, the government in Budget in the previous month said that the economy is looking forward to grow at 9 percent positive or negative 0.25 percent in the fiscal year 2011 to 2012.

The Reserve Bank of India has serves as the most active authority in the region to raise rates as the nation climbs out of economic downturn with the growth projected at 9% for next fiscal year beginning from April 1.