Raises short term lending and borrowing rates by 25 basis points; repo rate raised to 7.5 per cent, reverse repo rate at 6.5 per cent
The Reserve Bank of India (RBI) today for the tenth time since March 2010, raised the short-term lending and borrowing rates by 25 basis points each. This was in line with the market expectations to curb the rising inflation. The repo rate now stands at 7.5 per cent and the reverse repo rate at 6.5 per cent. The marginal standing facility (MSF) has also gone up by 25 basis points to 8.5 per cent. However, RBI has kept the cash reserve ratio (CRR) steady at 6 per cent.
In the mid-quarter policy review, the RBI said that it would continue taking measures to deal with high inflation which is currently causing much concern and to ease the likely risk to domestic growth from the potentially adverse global developments.
Mahendra Kumar Jajoo, ED and CIO, Fixed income, Pramerica Mutual Fund, said that with inflation at above 9 per cent, even without the impact of higher global crude prices, a more aggressive hike of 50 basis points was required to address the inflationary pressure. He also said that economy has already showed signs of a slowdown and persistently high inflation rates may pose the risk of a high landing later. At this point, it is very difficult to balance between near term compulsions and long term options.
As per another industry expert, the bond markets had already discounted this move because it believes that most of the rate hike would be front loaded, helping to tame long term inflation. So whatever measures the RBI has taken, would be translated in keeping the inflation down over a period of time. He also said that considering the present scenario, the best thing for an investor is to invest in short term debt funds.
