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Repo Rate Up 25 BPs; Auto, Home Loans Get Costlier

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Concerned over high inflation, the Reserve Bank on Friday raised key interest rates by 25 basis points, its 12th such hike since March, 2010, making auto, home and other loans more expensive. Finance Minister Pranab Mukherjee reacted to the move saying tightening is impacting the country's economic growth. Following the increase, the short-term lending (repo) rate stands at 8.25 per cent and the short-term borrowing rate (reverse repo) is 7.25 per cent. The RBI, while announcing its mid-term review of the monetary policy, kept all other rates and ratios unchanged. "The monetary tightening effected so far by the Reserve Bank has helped in containing inflation and anchoring inflationary expectations, though both remain at levels beyond the Reserve Bank's comfort zone," the central bank said. Despite the RBI increasing key rates several times since March, 2010, inflation shot up from 9.2 per cent in July to 9.8 per cent in August this year. Going forward, the RBI said the monetary stance will be "influenced by signs of downward movement in the inflation trajectory..." India's economic growth has cooled as the cumulative impact of earlier rate increases and rising prices crimp demand, and an expected pause in tightening connects it to the Asia bandwagon of central banks rolling back on rate hike campaigns. The rupee rose for a second consecutive day on Friday after the coordinated action by major central bankers to add liquidity into the European banking system. India's domestic demand driven economy grew 7.7 percent in the April-June period, its weakest pace in six quarters, but outperformed even gloomier predictions. (Agencies)