New Delhi: The Reserve Bank of India (RBI) has raised the repo rate by 25 bps to 8.25 percent, and the reverse repo rate also by 25 bps to 7.25 percent, to seize the rising inflation rate. The cash reserve ratio (CRR) was left unaffected at 6 percent.
The RBI raised the key lending rates for the 12th successive time in 18 months to 8.25 percent. According to the RBI, the annual inflation rate rushed to 9.78 percent for the month of August. The latest inflation number specified the need for the continued tightening.
This move is different from what other central banks are doing. The European Central Bank, Bank of England, and Swedish Central Bank sustained to hold rates steady at reviews last week, amidst easing inflationary pressures in the Euro zone and concerns of weakening growth prospects.
Several Asian central banks, including Malaysia’s and South Korea’s, paused in their fight against inflation, whereas Brazil recently cut interest rates.
The RBI, in its final review meet in July, raised the repo rate by 50 bps to 8 percent and the reverse repo rate by 50 bps to 7 percent. The apex bank has hiked the key policy rates 11 times since March 2010 to restrain inflation, which has been balanced above 9 percent mark since December last year.
There were concerns of growth slipping below 7 percent mark in 2011-12. There are negative developments such as the sovereign debt crisis in Europe, concerns of a US slowdown, lower-than expected July 2011 IIP growth of 3.3 percent as compared to 8.8 percent in June 2011 and 9.9 percent in July 2010. Despite all efforts, inflation has not declined.