RBI hikes repo rate, loans to cost more
A hawkish RBI on Friday unexpectedly raised the policy rate by 0.25 per cent as it kept its focus on controlling inflation, which it felt would be above the expected levels in the current fiscal.
RBI Governor Raghuram Rajan in his maiden policy review, however, eased liquidity though a reduction in the marginal standing facility rate, at which banks borrow from the central bank, by 0.75 per cent to 9.5 per cent.
The repo rate or the short term lending rate has been increased by 25 basis points to 7.5 per cent from 7.25 per cent with immediate effect. The markets reacted negatively, with the Sensex tanking by about 500 points while the rupee depreciated 69 paise to 62.46 against the dollar.
"The need to anchor inflation and inflation expectations has to be set against the fragile state of the industrial sector and urban demand. Keeping all this in view, bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately," Rajan said in the mid-quarter policy review statement.
The RBI rolled-back some of the measures it had implemented to support the battered rupee currency.
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