RBI hikes repo rate to tame rising prices

June 12th, 2008 - 11:41 am ICT by IANS  

Mumbai, June 11 (IANS) In a bid to tame rising prices which have pushed the annual inflation rate beyond 8 percent, India’s central bank of Wednesday raised the repo rate by 25 basis points to 8 percent from existing 7.75 percent. However, the apex bank - the Reserve Bank of India (RBI) - has kept the reverse repo rate unchanged.

Repo rate is the rate at which banks borrow money from the RBI, while reverse repo rate is the rate at which RBI borrows from the commercial banks.

The apex bank’s move comes on the back of Prime minister Manmohan Singh’s statement that both administrative and fiscal measures will be taken to contain inflation.

In fact, the inflation rate has shot up by at least 80 basis point following the steep hike in the prices of petroleum products announced June 4.

The apex bank in a statement said it had addressed the “unprecedented uncertainties and dilemmas that exist”.

It said: “Monetary policy has to respond proactively to immediate concerns. At the same time, it is critical at this juncture to demonstrate on a continuing basis a determination to act decisively, effectively and swiftly to curb any signs of adverse developments in regard to inflation expectations.”

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