Reserve Bank of India hikes key interest rates

July 2nd, 2010 - 8:36 pm ICT by IANS  

Mumbai, July 2 (IANS) India’s central bank Friday hiked key interest rates by 25 basis points with immediate effect in an attempt to contain soaring inflation.
The Reserve Bank of India (RBI) hiked the repo rate by 25 basis points to 5.5 percent and the reverse repo rate by a similar quantum to 4 percent, as part of its “caliberated exit from the expansionary monetary policy”, which was part of the stimulus package by the government at the height of the global financial crisis.

The repo rate, which was 5.25 percent prior to Friday’s revision, is the interest charged by the central bank on borrowings by commercial banks. A hike in this rate increases the cost of borrowing for commercial banks.

The reverse repo, which stood at 3.75 percent, is the rate at which the central bank borrows money from commercial banks. A hike in this rate makes it more lucrative for banks to park its funds with the RBI.

“The above monetary measures should contain inflation and anchor inflationary expectations going forward, while not hurting the recovery process,” said an RBI statement.

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