Tagged: Repo & Rev. Repo

RBI raises rates to stamp on inflation

Reuters | Tue Jul 27, 2010 | 1:48pm IST

The Reserve Bank of India (RBI) raised interest rates more forcefully than expected on Tuesday, signalling its urgency to stamp on inflation that is on track to hit double-digits for the sixth month running in July. One-year overnight interest rate swap rates jumped after the Reserve Bank of India (RBI) notched up its fourth rate rise this year and said it was "imperative" to normalise policy in line with the economy’s growth and inflation. Before Tuesday, the RBI had promised a "calibrated" exit from the loose monetary policy adopted during the global downturn, which markets had taken to mean 25 basis point rate hikes on Tuesday and again at quarterly reviews set for October and January. "The dominant concern that has shaped the monetary policy stance in this review is high inflation," the RBI said. "With growth taking firm hold, the balance of policy stance has to shift decisively to containing inflation and anchoring inflationary expectations," it said.

Bond yields and swap rates rose in reaction to the RBI’s decision. The 10-year benchmark bond yield gained 3 basis points to 7.70 percent. The most-traded 1-year overnight indexed swap rate jumped 19 basis points to 6.1 percent, its highest since November 2008. The RBI lifted the repo rate, at which it lends to banks, by 25 basis points to 5.75 percent, which was in line with expectations. But its bumped up the reverse repo rate, used to absorb excess cash from the system, by 50 basis points to 4.50 percent. A 25 basis point rise had been expected. Analysts said the moves showed the RBI was trying to take more decisive action following criticism that it had acted too timidly so far to tackle rising prices that the authority acknowledged had spread beyond food to the broader economy. "Of course, they are behind the curve on inflation," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. "They are trying to catch the train that has left the station and they are running to accomplish that. Unfortunately, they were late to the races and this means they would have to tighten more than they would have if had they started earlier," he said. 

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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.


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."


"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 

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RBI lifts key rates, CRR; signals more tightening

Reuters | Tue Apr 20, 2010 | 3:04pm IST

The Reserve Bank of India (RBI) on Tuesday raised key interest rates by 25 basis points, as expected, to battle near double-digit inflation, signaling gradual tightening ahead to sustain growth and manage record government borrowing. The Reserve Bank of India’s measured steps, which included raising the cash reserve ratio (CRR) requirement for banks by 25 basis points, increased the likelihood of another rate rise before its next quarterly review in July, some watchers said. The yield on the 10-year benchmark bond traded at 8.01 percent, down 7 basis points on the day, after easing to 7.98 percent after the RBI announcement, its lowest since April 13, as some players had bet on a bigger 50 basis point rise. The main 30-share BSE index was up 0.4 percent.

"The policy statement is not hawkish enough to address the concerns on the inflation front," said Rupa Rege Nitsure, chief economist at the Bank of Baroda in Mumbai. Price pressures are spreading beyond food to costs of fuel and manufactured goods such as cars. March inflation reached 9.9 percent year-on-year, its fastest pace in 17 months. However, the RBI is under pressure from the government not to raise rates aggressively, with New Delhi worried it could dent economic growth and also complicate its borrowing, which will reach a record $100 billion in the current fiscal year. "RBI at this juncture is more constrained by the management of the government’s record borrowing programme," Nitsure said.

The RBI is expected to raise rates by a further 100 basis points over the next 12 months, according to the one-year overnight indexed swap (OIS) rate at 4.95 percent. That is in line with a Reuters poll ahead of Tuesday’s review, which forecast 100 basis points of tightening by the end of 2010. "The next scheduled  

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RBI raises rates to tackle price pressures

Reuters | Sat Mar 20, 2010 | 8:27am IST

The Reserve Bank of India (RBI) on Friday unexpectedly raised interest rates from record-low levels for the first time since it began cutting in 2008, citing intensifying inflationary pressures and a steady economic recovery. The central bank raised the repo rate, the rate at which it lends to banks to 5 percent from 4.75 percent and reverse repo rate, the rate which it absorbs funds from the system to 3.50 percent from 3.25 percent with immediate effect. "Given the lags in monetary policy, it is better to respond in a timely manner, even if it is outside the scheduled policy reviews, than take stronger measures at a later stage when inflationary expectations have accentuated," the RBI said.

Analysts were expecting the Reserve Bank of India to raise interest rates by 50 basis points at its policy review on April 20, as a central bank deputy governor had ruled out any inter-meeting rate action. "RBI had fallen behind the curve on inflation. So it’s not surprising they have gone in for an inter-meeting correction. The concern is not so much on food prices, but that core inflation is picking up," said Abheek Barua, chief economist, HDFC Bank. India is the second major economy after Australia to start raising interest rates with signs of global recovery emerging and local price pressures picking up.     

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