RBI hikes interest rates by 25 bps; frees savings bank rate

Mumbai, Oct 25: The Reserve Bank today (Oct 25) chose to continue with its tight monetary stance and raised interest rates by 25 basis points-- 13th time since March, 2010-- to tame inflation, even as it lowered the growth target to 7.6 per cent for the current fiscal. In a major policy decision, Reserve Bank Governor Duvvuri Subbarao also deregulated savings bank deposit rates with immediate effect.

"Changing the policy stance when inflation is still far above the tolerance level entails risks to the credibility of the Reserve Bank’s commitment to low and stable inflation," the policy document said, even as it admits that growth momentum has slowed down.

It said inflation will start cooling by December this year and is likely to come down to 7 per cent by March, 2012. Today’s hike is the 13th since March, 2010. The series of rate hikes has cumulatively increased interest rates by 525 basis points.

The policy is expected "to continue to anchor medium term inflation expectations", while stimulating investment activity to support growth. Borrowers, who are livid at repeated rate hikes, can heave a sigh of relief as the RBI hinted at a reversal of policy stance by saying the likelihood of a hike in December is "relatively low".

PTI