Reserve Bank of India on Thursday raised key policy rates by up to 50 basis points for the fifth time this year, a decision that will make loans expensive and help check inflation, but give better returns to small savers.
As part of its first mid-quarterly review of Monetary Policy, RBI upped its key short-term lending (repo) rate by 25 basis points and borrowing (reverse repo) rate by 50 basis points to 6 per cent and 5 per cent, respectively.
The decision has been guided by the need to contain inflation, which is currently at 8.5 per cent (food inflation has touched 15.1 per cent), as a hike in rates will lead to a rise in cost of funds for banks and will make loans expensive. This, in turn, will reduce consumption.
Following the hike in repo and reverse repo rates by a similar margin in July, the fourth time then during the calendar year, 40 banks have raised deposit rates and 29 lending rates.
For RBI the major concern in inflation as “headline inflation remains significantly above the trend of 5-5.5 per cent in the 2000s.
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