30.10.13

RBI hikes repo rate



RBI Governor Raghuram Rajan intensified his war on inflation by raising the repo rate a quarter percentage point while lowering the marginal standing facility by an equal amount to ease the availability of cash.
The repo rate, at which RBI lends to banks, was raised to 7.75% and MSF cut to 8.75%, restoring the gap between the two to 100 bps, in line with expectations.
The central bank may not be done with the tightening of policy.
The cash reserve ratio and statutory liquidity ratio were kept unchanged at 4% and 23%, respectively, in line with expectations.
In order to ease short-term liquidity positions, RBI increased the amounts that can be borrowed through the seven-day and 14-day term repo windows to 0.5% of total deposits from 0.25%. That will mean additional liquidity of Rs.20,000 crore through the term repo window.
Banks can borrow up to 0.5% of their net time and demand liabilities or Rs.40,000 crore through the repo
Inflation based on the wholesale price index (WPI) was 6.46% last month, above RBI’s comfort level of 5%. While a strong harvest resulting from the good monsoon will ease food inflation, that may not have a ripple effect on prices, RBI said.
RBI said retail inflation measured by the consumer price index has also risen sharply across food and non-food constituents, including services, keeping inflation expectations high. It expects retail inflation to remain around or even above 9% in the months ahead without policy action.

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