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Policy 16 Sep, 2011, 12.01PM IST, PTI
Repo rate, reverse repo rate hiked by RBI; home, auto loan EMIs to go up Story Comments (16)
Read more on »reverse repo rate|Repo rate|RBI rate hike|crr|credit policy
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RBI hikes repo, reverse repo rate by 25 bps
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The RBI said as the monetary policy operates with a lag, the cumulative impact of policy actions should now be increasingly felt in the form of a further moderation in demand and reversal of the inflation trajectory toward the latter part of the 2011-12 financial year. As such, it said, a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore, imperative to persist with the current anti-inflationary stance. Monetary transmission strengthened further with 45 scheduled commercial banks raising their base rates by 25-100 basis points after the RBI's last review in July. Consequently, the base rate of various banks averaged 10.75 per cent in August, up from 10.25 per cent in July. Commenting on the rate hike effected by the RBI, Indian Overseas Bank Chairman and Managing Director M Narendra said the banks need to pass on the hike to customers as their cost of funds has gone up. "I believe banks would wait till the month-end before taking a call on an interest rate hike," he said. Echoing similar views, Corporation Bank Chairman and Managing Director Ramnath Pradeep said, "Banks will have to raise rates, but when and how will be decided by individual banks, depending on their asset liability conditions." According to Punjab and Sind Bank Executive Director P K Anand, the impact of the policy rate hike will take effect with a time lag. The banks, he said, will maintain the current rates at least for the next 15 days and take a call on revising them depending on credit demand. The RBI noted that developments in the global economy over the past few weeks are a matter of serious concern. The growth momentum is weakening in the advanced economies amid heightened concerns that the recovery may take longer than expected. Although India's exports have performed extremely well in recent times, this trend is unlikely to be sustained in the face of weakening global demand, it said. This, combined with the slowing down of domestic demand, to which the monetary policy stance is also contributing, suggests that the risks to the growth projections for 2011-12 made in the RBI's July review are on the downside, it added. Many indicators point to moderating growth. Both headline and non-food manufactured products inflation are at uncomfortably high levels. Crude oil prices remain high. In addition, food price inflation has persisted, notwithstanding the normal monsoon, it said. Page 2 of 2 Prev Next For Policy news updates, follow ET on Twitter Hi Sid Harth! Do you like this story? Post a Comment Follow this topic PREVIOUS STORY Reserve Bank of India's monetary tightening affecting economic growth, says Finance minister Pranab Mukherjee RBI's monetary tightening is impacting the country's economic growth, Finance Minister Pranab Mukherjee told reporters on Friday.
NEXT STORY Petrol price hike, now brace for higher interest on loans If RBI hikes rates, it will be the 12th such exercise since January last year. This will lead banks to hike interest rates on auto and home loans.
Readers' opinions (16)
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Rakesh Gupta (New Delhi) RBI is increasing interest rate to check inflation. Inflation is not controlled. Prices are increasing at superfast speed. Economic growth is also stagnant or is not growing. I don't know how long RBI will continue increasing interest rate.
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Jaishankar Prasad (Jamshedpur) We do not know , whether the RBI, and our finance ministry understand that the increase by the RBI interest rate has nothing to do with the food inflation. It will never check the inflation. Inflation in India is due to wrong supply of money in the social sector , which are pocketed by the middle man. The high and unwanted subsidy , which is not going to real benificiaries for whom it is subsidised. The fake currency in circullation . Black money in housing and other sector. The RBI by increasing the interest rate are checking the growth of the MSME sector which are heavily dependent on bank borrowings and the working class which sweat dreams of home , small car and other utility articles are fulfilled on borrowings. Again , the cash rich industries and high networth individuals will be the biggest gainer of the policy due to increase in deposit interest rate . They are in a position to bargain the interest rate. So the rate must be reduced to boost the groth.
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dharm (mumbai) Inflation today is the fallout of rampant credit expansion and loose monetary policy seen in the last 3-4 years RBI unfortunately was sleeping all this while; first we had asset inflation and the same has now moved to items of everyday neccessity this is the normal pattern of inflation the feeling that inflation cannot be stopped is now deeply embedded in the minds of public and therefore it will perhaps take a little longer and even bigger rate hikes to rectify this problem but RBI is doing the right thing as inflation the world over is a monetary phenomenon the more you print the lesser the value of existing currency it is not that prices are going up it is the other way around the value of money is going down; in fact even now the real cost of capital is probably zero and we need at least 2 rate hikes of 50 basis points to alter the perception among public and speculators; let us be patient for another 6 months as there is a lag to the effect of rate hikes
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Amol Kinikar (Pune) God save this country. This Governor does not know any other thing to tackle inflation and surprisingly gifted additional term by govt. The supporters of the decision should introspect what earlier 11 increses have done that this can do.
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e s serma (chennai) viewing from the increase in the inflation rate continuously and also the petrol price hike, which will add further to the inflation, the RBI has done the right job of increasing the repo and revese repo.but i think canot go on as it will trigger the interest hike by commercial banks and becomes costly for the corporates. it is high time that govt takes up the issue of increasing the agriculture production and its place in the GDP by facilitating the production per acre and also augmenting the vegetable and fruits production. Many measures are required to be taken in this regard. Then only agriculture growth and reduction in inflation can be seen
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I would like you, ET, and your readers, Oops, commentators, to read following articles/resources.
Inflation is natural. It occurs in economies of both developed contries and not yet fully developed countries, such as India. Please don't start with me on that count.
My preference, in the past, was to call India, "a third-rate, third-world messed-up country."
I keep my true feelings to myself, lately.
A Positive Theory of Monetary Policy in a natural Rate Model
Rober J Barrow; David B Gordon
The Journal of Political Economy, Vol. 91, 4(Aug., 1983), 589-610
The Journal of Political Economy is currently published by The University of Chicago Press.
Ination Targeting as a Monetary Policy Rule
Lars E.O. Svensson¤
Institute for International Economic Studies, Stockholm University;
CEPR and NBER
First draft: May 1998
This version: August 1998
NBER Working Paer Series
Inflation Targeting: A new framework for Monetary Policy
Ben Bernanke
Paul Krugman - New York Times Blog
May 3, 2011, 12:29 pm
Resources, Inflation, and Monetary Policy
Ignorance, may be a bliss, for BJP type rabble- rousers. They go for something as stupid as price of rice, onions and petrol. It suits their propane. Oops, profane personality.
They have only one solutions to all the problems faced by India, please allow me to quote:
"garve se kaho ham hindu hain. mera bharat mahan. indiya shaining. gali gali mein shor hain, kangresswallah chor hain."
...and I am Sid Harth@mysistereileen.com
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