Mumbai: Under relentless pressure to control inflation, RBI on Tuesday hiked both short-term lending rate and mandatory cash reserve for banks by 50 basis points each, a move that could force banks to raise interest rates on loans to corporate and consumers.
It has been decided that the short-term lending rate (repo) is increased from 8 per cent to 8.50 per cent with immediate effect, RBI said in a notification here.
Besides, the Cash Reserve Ratio, the amount that banks need to maintain with RBI, will be increased by 50 basis points to 8.75 per cent in two stages, effective from a fortnight beginning from July 5 and July 19.
The RBI's decision came within days of the Finance Ministry saying that monetary steps are the first line of defence in fight against inflation which touched 13-year high of 11.05 per cent for the week ended June 7.
The RBI had earlier increased the repo rate by 0.25 per cent to 8 per cent on June 11.
Highlights of RBI comment
- First 25 basis points CRR hike to be effective from Jul 5.
- Second 25 bps CRR hike will come into effect from Jul 19.
- Priority now is to eschew build up of inflation pressures.
- Aggregate demand pressures strongly in evidence.
- Investment demand continues to remain strong.
- RBI notes capital goods production revived in April.
- Consumption demand seems reviving consumer goods output.
- RBI notes turnaround in production of durables.
- Rise in non-oil imports reflects domestic demand pressure.
- Fiscal pressures emerging due to likely rise in subsidies.
- India somewhat de-coupled from worsening global food crisis.
- Moderating, managing demand a critical element.
- Non-food credit, deposit growth above projections.
- Government supply management strategies working through economy.
- Steps since 2004 eased overheating signs that emerged FY07.
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