RBI raises policy rates by 25 basis points to tame inflation

Mumbai, Mar 17: The Reserve Bank today raised its short term lending and borrowing rates, for the eighth time since Mar 2010, by 25 basis points in a bid to rein in inflation.

The short term lending rate (repo) has been increased from 6.50 per cent to 6.75 per cent, while the short-term borrowing rate (reverse repo) has been raised to 5.75 per cent from 5.50 per cent. Increase in rates by RBI is expected to make loans, including housing, auto and corporate loans, dearer.

Keeping in view the liquidity situation, the central bank has kept the Cash Reserve Ratio (CRR), the amount which lenders are required to keep with the RBI in cash, unchanged at 6 per cent.

RBI has raised inflation projection to 8 per cent for Mar-end against 7 per cent estimated earlier.

"After a slight moderation in January, headline WPI inflation reversed in Feb 2011 accompanied by a sharp increase in non-food manufactured products inflation," RBI said in its mid-quarterly review announced today.

The overall inflation increase marginally in February to 8.31 per cent from 8.23 per cent a month ago.

The policy initiatives, RBI said, are aimed at reining in demand-side inflationary pressures and contain the spillover of food and commodity price hike to other sectors.

It further said that the central bank would continue with its policy to contain rate of price rise.

"Based on the current and evolving growth and inflation scenario, the Reserve Bank is likely to persist with the current anti-inflationary stance," it said.

PTI