RBI moves to curb inflation; raises short-term repo rate

Mumbai, Jan 31 (UNI) In a move to curb inflation, the Reserve Bank of India (RBI) today raised the short-term repo rate by 25 basis points from 7.25 per cent to 7.50 per cent in the third quarter review of credit policy.

However, the Central Bank has kept the reverse repo, bank rate and CRR unchanged.

RBI Governor Dr Y V Reddy, while releasing the third quarter review of the annual statement on the Monetary policy for the current fiscal here, said the Central Bank retains the option to conduct overnight repo or longer term repo under the Liquidity adjustment facility (LAF) depending on market conditions and other relevant factors.

Inflation had touched a two-year high of 6.12 per cent in the first week of January before easing to 5.95 per cent the following week.

The Central Bank has a word of praise for things like petroleum refinery products and cement production that registered a double-digit growth. Similarly, production of crude petroleum recorded a turnaround and the growth of electricity production was higher than a year ago.

Early results for the third quarter of the year indicate sustained growth in sales and in both gross and post-tax profits, the statement says. A positive outlook for demand conditions continues with increased optimism reflected in order books, production, employment and profit margins, adds the statement.

The statement says that the business confidence appears to have picked up during the quarter on the back of a healthy increase in sales, profits, new orders, selling prices, inventory levels and boosted by strong corporate results record number of mergers and acquisitions by Indian companies and rising equity prices.

Interestingly, the statement comes at a time when the Tata Steel has become the world's fifth largest steel company by winning the bid for the Corus by offering a share price of 608 pence per share.

On the housing loans, which are likely to cost more in view of today's increase in repo rates by the RBI, the statement says it has recorded a growth of 34.3 per cent. Concern has also been expressed over the share of infrastructure in total credit to industry which declined marginally from 20.2 per cent in October, 2005 to 20.0 per cent in October last year.

Deposit rates offered by scheduled commercial banks on various maturities have been revised upwards during the current fianncial year. Same is the case with equity market too whose activity recorded a significant increase in terms of issuances in the domestic primary segment as well as in international stock exchanges, says the statement.

The annual policy statement for 2007-08 will be announced on April 24.

UNI