NEW DELHI: The Reserve Bankof India (RBI) raised repo rates by 25 bps on Friday to 8.25% and reverserepo rates by 25 bps to 7.25%, to arrest rising inflation in Asia's thirdlargest economy. CRR wasunchanged at 6%.
The RBI raised key lending rates for the 12th consecutive time in 18 monthsto 8.25 per cent. Post the hike, most analysts expect the RBI to pausethe rate hike cycle.
Annual inflation surged 9.78 per cent for the month of August, its highestin over a year, driven by rising prices of food and manufactured products.
The latest inflation numbers echoed the need for continued tightening,although the global scenarios remain weak and signal slowdown in the globaleconomy.
"Given inflation is still very much on RBI's priority, we don't seea pause at this time," said Abheek Barua, chief economist at HDFCBank. "Also, ifyou see the indirect indicators like excise collections, you would findthat growth has not dramatically collapsed, it has just moderated."If the RBI's governor's past utterances are any indication, the hawkishstance on inflation will remain.
"Notwithstanding signs of moderation, inflationary pressures are clearlyvery strong," he had said during the first quarter monetary policyreview on July 26. "The current balance of global and domestic factorssuggests that monetary policy needs to persist with a firm anti-inflationarystance."
Passenger car sales have slowed in recent months after jumping 30 per centin the fiscal year ended in March, suggesting high inflation and risingborrowing costs are hurting consumer durables demand. Further, rate increasescould worsen growth in factory output, bank credit, car sales, and non-oilimports which are already reeling under pressure.
The RBI has been one of the most active central banks globally to manageinflation.
The European Central Bank, Bank of England, and Swedish Central Bank amongothers continue to hold rates steady at reviews last week, amid easinginflationary pressures in the euro zone and concerns over weakening growthprospects.
A number of Asian central banks, including Malaysia's and South Korea's,paused their fight against inflation, while Brazil recently cut interestrates.
The RBI raised key lending rates for the 12th consecutive time in 18 monthsto 8.25 per cent. Post the hike, most analysts expect the RBI to pausethe rate hike cycle.
Annual inflation surged 9.78 per cent for the month of August, its highestin over a year, driven by rising prices of food and manufactured products.
The latest inflation numbers echoed the need for continued tightening,although the global scenarios remain weak and signal slowdown in the globaleconomy.
"Given inflation is still very much on RBI's priority, we don't seea pause at this time," said Abheek Barua, chief economist at HDFCBank. "Also, ifyou see the indirect indicators like excise collections, you would findthat growth has not dramatically collapsed, it has just moderated."If the RBI's governor's past utterances are any indication, the hawkishstance on inflation will remain.
"Notwithstanding signs of moderation, inflationary pressures are clearlyvery strong," he had said during the first quarter monetary policyreview on July 26. "The current balance of global and domestic factorssuggests that monetary policy needs to persist with a firm anti-inflationarystance."
Passenger car sales have slowed in recent months after jumping 30 per centin the fiscal year ended in March, suggesting high inflation and risingborrowing costs are hurting consumer durables demand. Further, rate increasescould worsen growth in factory output, bank credit, car sales, and non-oilimports which are already reeling under pressure.
The RBI has been one of the most active central banks globally to manageinflation.
The European Central Bank, Bank of England, and Swedish Central Bank amongothers continue to hold rates steady at reviews last week, amid easinginflationary pressures in the euro zone and concerns over weakening growthprospects.
A number of Asian central banks, including Malaysia's and South Korea's,paused their fight against inflation, while Brazil recently cut interestrates.
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