RBI hikes rates by 50 bps to check inflation

The Reserve Bank of India (RBI) on July 26 raised the key policy rates - the repo rate and the reverse repo rate - by a larger-than-anticipated half a percentage point, as it persists with its efforts to tame the inflation monster notwithstanding some moderation in economic growth. So, the repo rate now stands at 8% and the reverse repo rate is at 7%. There has been no change in the Cash Reserve Ratio (CRR), which stands at 6%. The bank rate has been retained at 6%. The Marginal Standing Facility (MSF) rate, determined with a spread of 100 bps above the repo rate, stands recalibrated at 9% with immediate effect.



The stance of the monetary policy will be as follows:

Maintain an interest rate environment that moderates inflation and anchors inflation expectations.
Manage the risk of growth falling significantly below trend.
Manage liquidity to ensure that monetary transmission remains effective, without exerting undue stress on the financial system.

"It is expected that these policy actions will reinforce the cumulative impact of past actions on demand," the RBI said in a statement. "The policy move will maintain the credibility of the commitment of monetary policy to controlling inflation, thereby keeping medium-term inflation expectations anchored," it said.

It will reinforce the point that in the absence of complementary policy responses on both demand and supply sides, stronger monetary policy actions are required," the RBI said. Going forward, the monetary policy stance will depend on the evolving inflation trajectory, which, in turn, will be determined by trends in domestic growth and global commodity prices, the RBI said. A change in stance will be motivated by signs of a sustainable downturn in inflation, it added.

The next mid-quarter review of Monetary Policy for FY12 will be announced through a press release on Friday, September 16, the RBI said. The Second Quarter Review of Monetary Policy for FY12, including developmental and regulatory policies, is scheduled on Tuesday, October 25.