The Reserve Bank of India on Thursday raised its benchmark rates by 25 basis points to 7.50 per cent, hiked reverse repo rates by 25 bps to 6.50 per cent in a move to arrest surging inflation in Asia 's third largest economy.
Other policy rates such as the statutory liquidity ratio and the cash reserve ratio - the minimum quantum of money against deposits which the banks have to retain as cash or specified government securities - have been left untouched.
Some short-term deceleration in growth may be unavoidable in bringing inflation under control and the central bank needs to persist with its anti-inflationary stance, the Reserve Bank of India
"The increase confirms determination of policymakers to continue to fight stubbornly high inflation. We expect at least one more hike this year, in Q3, but there is a possibility of more if inflation doesn't stabilise by then.The RBI statement is hawkish. The comments are likely to keep short INR OIS rates high but may lead to curve flattening as growth slowdown will bring long rates lower. Little impact on the FX seen.", ssid Dariusz Kowalczyk, Senior Economist and strategist at Credit Agricole CIB in Hong Kong ..
"A 25 basis points rate hike was warranted. Growth is slowing and the downside risks to growth have increased. Inflation reacts both to rate hikes and growth with a lag, so we had expected 75 basis points of rate hikes for 2011, but we won't add to that. I see the repo rate at 8 percent by December.", opined Ramya Suryanarayanan, Economist at DBS Bank in Singapore
"Based on the current and evolving growth and inflation scenario, the Reserve Bank will need to persist with its anti-inflationary stance of monetary policy," the central bank said in its mid-quarter review of credit policy.
"Domestically, inflation persists at uncomfortable levels. Moreover, the headline numbers understate the pressures because fuel prices have yet to reflect global crude prices," it said.
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