RBI'S NEW REPO RATE

RBI REPO RATE

The Reserve Bank of India(RBI ), few days before, raised the repo and reverse repo rates by 25 basis points each. This means that the repo rate, which is the bank's main lending rate, has been hiked from 5.25% to 5.50% and the reverse repo rate, which is the key borrowing rate, has been increased from 3.75% to 4% with immediate effect. Aiming to tackle the rising inflation, the Reserve Bank of India has taken this step.

The additional liquidity support to scheduled commercial banks under the LAF to the extent of up to 0.5% of their net demand and time liabilities (NDTL) currently set to expire on July 2, 2010 is now extended up to July 16, 2010.

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In its statement the Reserve Bank said the move became imminent because of the evolving macro economic situation.

The policy review decision would raise cost of funds for banks and temper demand for loans, and in turn, consumer spending.

"Inflation pressure will remain", the RBI in its report on Currency and Finance 2008-09 said and pointed out that "important challenges for the monetary policy authorities would be (to) ensure financial stability, although price stability should continue as the primary objective of the policy".