The RBI increased lending rates yesterday, in its mid quarter policy review. Markets and economists expected rates to be increased by 25 bps but RBI surprised everyone by increasing them by 50 bps. RBI acknowledged that rising input cost and oil price are fuelling inflation to a high of almost 9 percent (March end) and controlling inflation is its priority even if it means economic slowdown in the short term. It also reduced its growth projection for the economy to 8 percent for the current fiscal year.
The short term lending rate (repo) was increased by 50 bps to 7.25 percent. The reverse repo, the rate at which banks park their funds with RBI, too has been raised by 50 bps to 6.25 percent.
RBI Governor D Subbarao said that the inflation which stood at 8.98 percent in March and the rising oil and commodity prices will pose a challenge to economic growth this fiscal. RBI reduced its GDP growth projection by 1 percent between 7.4 and 8.5 percent.
RBI expects inflation to be at high levels for the first half of the current financial year. Hence one can expect some more rate hike in the near term if the inflation figures do not start to come down. A normal rainfall might just ease the inflationary pressures.
No comments:
Post a Comment