RBI hikes key rates by 25 bps


Reuters | Fri Jul 2, 2010 | 6:38pm IST

The Reserve Bank of India (RBI) on Friday raised its short-term lending and borrowing rates by 25 basis points each, effective immediately. It raised its main lending rate to 5.50 percent from 5.25 percent, and the reverse repo rate, at which it absorbs excess cash from the banking system, to 4 percent, from 3.75 percent, it said in a statement released after market hours.

COMMENTARY:

VAIBHAV SANGHAVI, DIRECTOR OF AMBIT CAPITAL IN MUMBAI "This is not a surprise. It had to happen. I think RBI is continuing with its tightening measures to curb inflation. Stock market may open negative on Monday because of this move."

JAY SHANKAR, ECONOMIST, RELIGARE CAPITAL, MUMBAI:

"Rate hike was very much on expected lines. The market was anticipating a rate hike, timing was the issue. In RBI’s assessment, liquidity situation should have improved. So RBI has decided to hike rates this weekend itself. It’s a welcome move but probably RBI should have moved a little more aggressively — not now, but earlier in April 

or May. The rate hike quantum is OK as we have a liquidity crunch scene right now. But it has come too late."

BACKGROUND:

  • Official data last month showed the wholesale price index rose an annual 10.16 percent in May.
  • The government also revised March’s inflation to 11.04 percent from the earlier estimate of 9.90 percent.
  • Data showed industrial output rose 17.6 percent in April from a year earlier, the strongest since December 2009, supported by buoyant domestic consumer demand, a revival in exports and higher infrastructure spending.
  • The central bank had raised the repo rate, at which it lends to banks, and the reverse repo rate, at which it absorbs excess cash from the banking system earlier in March and April.
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