RBI surges key interest rates by 25 bps

The Reserve Bank of India (RBI) has surged the key interest rates by 25 basis points (bps), its 12th such surge since March 2010 since it is concerned about the high inflation. This move will make auto, home and other loans more expensive.

After the surge, the short-term lending (repo) rate was at 8.25% and the short-term borrowing rate (reverse repo) stood at 7.25%.
The RBI while making the announcement its mid-term review of the monetary policy has maintained all the other rates and ratios unchanged.

According to a statement from RBI, “The monetary tightening effected so far by the Reserve Bank has helped in containing inflation and anchoring inflationary expectations, though both remain at levels beyond the Reserve Bank's comfort zone.”

Although, RBI has revised the key rates many times since March 2010, but inflation has still risen from 9.2% during July to 9.8% during August this year.

RBI has stated that the monetary stance will get influenced by the inclinations of the downward movement in the inflation trajectory.

Moreover, the Gross Domestic Product (GDP) growth in the first quarter (April-June) of the 2011-12 financial year has moderated to 7.7% from 8.8% in the corresponding period year ago, after witnessing slowdown in the industrial output growth in July to 3.3%, which is the lowest level in 21-months time.