RBI Raised Repo Rate by 0.5 Percent to contain raising Inflation

The Reserve Bank of India (RBI) today raised repo rates by 0.5 percent to control the inflation.The short term lending rates are hiked by 0.5 to 8 percentThis is the eleventh time that RBI has raised the rates in a decade to contain rasing inflation.The short term borrowing rate has moved from 6.5 to 7 percent and the CRR remains unchanged at 6 percent.

RBI Interest Rates

Due to hike in repo rates the loans are likely to become more costlier and home loan EMI's will also increase when banks increase their base rate. Earlier, the RBI had hinted at a rate hike in its Macroeconomic and Monetary Developments Report released on Monday. "The unfinished task of taming inflation warrants continuation of anti-inflationary monetary stance, (though) the downside risks to growth have increased," RBI had said. The RBI had said it will have to continue the thrust on tight monetary stance till there is "clear evidence of inflation trending close to a level within RBIs comfort zone".

REPO Rate

Inflation continues at the high level for the month of june stood at 9.44 percent and global commodity prices also remain high which has an adverse effect on investment cycle.GDP targets has also revised from 9 to 8-8.5 percent.The Central Bank has set an inflation target of 6 percent at the fiscal end.

RBI GUIDANCE


* Monetary policy will persist with a “firm” anti-inflationary stance
* Change in stance will depend on evolving inflation trajectory
* Change in stance will be motivated by “sustainable” downturn in inflation
* To manage liquidity to ensure effective monetary transmission
* RBI policies to maintain credibility of monetary policy
* Absence of complimentary policies calls for stronger monetary policy actions
* RBI to maintain interest rate environment that moderates inflation
* RBI to manage risk of growth falling “significantly” below trend

RBI

RBI PROJECTIONS


* WPI inflation projection revised upward from 6% to 7%
* GDP growth projection retained at 8%
* Bank credit growth projection revised downward from 19% to 18%


RBI ON GROWTH


* Growth is beginning to moderate
* No evidence of a sharp broad based slowdown
* Moderation will be limited by strong consumption & wage increases
* Downward risks to global growth have increased


RBI ON INFLATION


* Actual inflation has been higher than expected
* Demand side inflationary pressures continue to prevail
* Non-food manufacturing at elevated levels
* Crude prices remain volatile and are a major risk
* Recent fuel price increase will keep inflation under pressure
* Suppressed inflation due to incomplete pass-through of fuel prices
* Higher MSP could exert upward pressure on food inflation
* Any shortfall in rainfall could put significant pressure on food inflation
* Aim to contain inflation perceptions of inflation at 4-4.5%


RBI ON FISCAL DEFICIT


* Large fiscal deficit a key source of demand pressures
* Fiscal consolidation critical to controlling inflation
* Government must focus on quality of expenditure


RBI ON POLICY PARALYSIS


* Policy actions needed to reinforce pick-up in FDI
* Inadequate supply response could keep food inflation high
* Continuing supply bottlenecks raise questions about growth sustainability
* Economy’s ability to grow rapidly without inflation dependent on implementing policies