Duel with inflation continues, RBI hikes rate again, signals more

Mumbai: Auto and home loans are set to get costlier as India's central bank Thursday hiked short term lending rates by 25 basis points in a bid to curb inflation and indicated that more such increases were in the offing.

The Reserve Bank of India (RBI) raised the repo rate by 25 basis points from 7.25 percent to 7.5 percent with immediate effect. As per the structural changes announced in the monetary policy for 2011-12, the reverse repo rate stands automatically revised to 6.5 percent.

This is the tenth time the RBI has raised interest rates since March 2010.

"Domestic inflation remains high and much above the comfort zone of the Reserve Bank," said the RBI in the mid-quarter monetary policy review.

"While the Reserve Bank needs to continue with its anti-inflationary stance, the extent of policy action needs to balance the adverse movements in inflation with recent global developments and their likely impact on the domestic growth trajectory," the RBI added.

Latest data showed that annual inflation rose to 9.06 percent in May, compared to 8.66 percent in the previous month. Food inflation too is hovering around a high 8.96 percent as recorded for the week ending June 4.

The central bank said that the current increase in repo rate would help "contain inflation and anchor inflationary expectations by reining in demand side pressures and mitigate the risk to growth from potentially adverse global developments."

Other policy rates such as the statutory liquidity ratio and the cash reserve ratio -- the minimum quantum of money against deposits which the banks have to retain as cash or specified government securities -- have been left untouched.

The bank rate also remains unchanged at 6 percent.

Signalling continuation of its hawkish monetary stance, the RBI said it would persist with more rate hikes to contain inflation.

"Based on the current and evolving growth and inflation scenario, the Reserve Bank will need to persist with its anti-inflationary stance of monetary policy," the central bank said.

It also maintained the projection for gross domestic product growth for 2011-12 at around 8 percent.

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