RBI hikes rates

The Reserve Bank of India, or RBI, raised policy rates for the tenth time in 15 months, the longest streak in a decade, and signalled it may not rest until it tames prices as slowdown concerns are probably blown out of proportions, at least for now. The possibility of the global economy plunging into a crisis again has increased with countries such as Greece facing the possibility of sovereign default, and commodity prices off their highs due to global instability. But the tougher external environment did not mean it was time to bring the series of rate increase to a halt, Governor Duvvuri Subbarao said in his midquarter policy statement. “Domestic inflation risks remain high,” he said in the statement. “Against this backdrop, the monetary policy stance remains firmly anti-inflationary, recognising that, in the current circumstances, some short-run deceleration in growth may be unavoidable in bringing inflation under control.” The repo rate—the rate at which the central bank lends to banks—has been raised 25 basis points to 7.5% and the reverse repo rate—the interest the RBI pays banks for their surplus parked with it—by a similar amount to 6.5%. A basis point is 0.01 percentage point. It has kept the full-year economic growth forecast at 8% and inflation at 6% by March 2012. Wholesale Price Index-based inflation was at 9.06% in May. The rate increase need not immediately translate into higher market interest rates as banks would change rates depending on their funding needs and demand for loans.