RBI hikes key rates by 0.25%

Home, auto and loans to corporate may become costlier as RBI today hiked short-term lending and borrowing rates by 0.25 per cent each, though bankers felt there may not be an immediate increase in interest rates.These initiatives (hike in rates) are aimed at checking price rise while retaining the growth momentum, RBI said while raising the year-end inflation projection to 7 per cent and retaining the economic growth forecast for the financial year at 8.5 per cent.The short-term lending (repo) rate has been increased to 6.5 per cent while the borrowing (reverse repo) rate has gone up to 5.5 per cent. RBI also extended the additional liquidity support facility to banks till April 8, 2011.It has retained the cash reserve ratio (CRR) — a portion of deposits that banks are required to maintain in cash with the RBI — at 6 per cent to ensure that the system had enough liquidity to meet loan requirements. The RBI will constantly monitor the credit growth and, if necessary, will take necessary steps, according to third quarter monetary policy review announced on Tuesday.The Reserve Bank projected an economic growth of 8.5 per cent with an upside bias.It also warned that inflation is a matter of concern and revised its projection for FY 2011 to 7 per cent from 5.5 per cent earlier.The central bank in 2010 raised the key policy rates six times to contain inflation which shot up to 8.43 per cent in December on high prices of food items, from 7.48 per cent in November.While the food inflation for the week ended January 8 stood at 15.52 per cent. It had soared to 18.32 per cent in the end of December on high prices of vegetables, including onion.