RBI hiked policy rates by 25 basis points to stop inflation from intensifying further; expected to raise rates by another 75-100 basis points
Mumbai: The Reserve Bank of India (RBI) on Tuesday hiked repo rate and reverse repo rate by 25 basis points each to 6.50 per cent and 5.50 per cent respectively in an attempt to contain inflation.
RBI Governor, Y V Reddy, said the growth-inflation dynamics in the last few weeks suggest that the balance of risk has tilted towards intensification of inflation. In this scenario, the stance of the monetary policy is intended to contain the spill-over of high food and fuel inflation into generalised inflation and anchor inflationary expectations, while being prepared to respond to any further build-up of inflationary pressures.
The RBI has revised higher its wholesale price index (WPI) inflation projection for March 2011 to 7.0 per cent from 5.5 per cent earlier.
Disaggregated data suggests that credit growth, which was earlier driven by the infrastructure sector, is becoming increasingly broad-based across sectors and industries, evidencing growth momentum and demand pressures.
RBI said with the risks to growth in 2010-11 being mainly on the upside, the baseline projection of real GDP growth is retained at 8.5 per cent as set out in t he Second Quarter Review of Monetary Policy of July 2010 but with an upside bias.
Sandesh Kirkire, CEO, Kotak Asset Management Company Ltd: “The 25 basis points hike in the repo and reverse repo rate by RBI was largely on expected lines. It is evident from the central bank’s policy statement that the role of monetary policy in the current inflationary situation is confined to containment and prevention of the food and energy prices from spilling over into the generalized inflation. We therefore believe that the monetary policy would continue in the path of gradual tightening without affecting growth.”
