Repo, Reverse repo up by 25 basis points: RBI

With headline inflation clocked at 9.78%, the only option left with the Reserve Bank of India (RBI) was to raise the key policy rates. To curb sticky inflation, RBI hiked repo and reverse repo rate by 25 basis points each. With this, the repo rate stands at 8.25% and reverse repo at 7.25%.

This is the 12th consecutive hike since March 2010 with policy rates raised up to 350 basis points. Last it raised on July 26 by 50 basis points.

At present, inflation in India is highest among the Asia and much above the RBI's comfort zone of 5%. RBI is taking all possible steps to combat inflation.

Petrol prices have also been raised on Thursday which could again add pressure on inflation numbers. Food inflation stood at 9.47% for the week ended on August 27, year-on-year basis. Though food inflation came down a bit but overall inflation is still hovering close to double digits due to high fuel prices.

Industry leaders expected a pause after last rate hike as their growth have been affected. The IIP growth dipped sharply from 6.6% to 3.3% for the month of July 2011.

This another rate hike would again put pressure on banks to raise interest rates, which will increase the borrowing cost for companies.

India needs to control inflation to sustain growth, if inflation does not come down, the rate hike policy stays. the RBI said while announcing key policy rates.

GoodReturns.in