M A I N   N E W S

RBI moves to tame inflation
Repo rate, CRR hiked

Mumbai/New Delhi, June 24
The Reserve Bank of India today announced its much-awaited measures to curb liquidity by raising banks’ mandatory cash reserves and its short-term lending (repo) rate to them, a move that banks said would increase interest rates for auto, personal and home loans as also for the industry.

Confronting with over 11 per cent inflation, the RBI said cash reserve ratio and its short-term lending rates for the banks are being increased by 50 basis points each.

The stringent measures announced by the apex bank came within days of RBI Governor Y.V. Reddy’s meeting with Prime Minister Manmohan Singh and finance minister P. Chidambaram to discuss steps that are needed to control inflation in the face of surge in oil prices that accounted for 94 per cent increase in the latest inflation figure.

In a precursor to raising CRR from 8.25 per cent to 8.75 per cent in two instalments beginning July 5 and the repo rate from 8.0 per cent to 8.5 per cent with immediate effect, Reddy had said yesterday that the apex bank would do every thing to ease the inflationary pressures.

Expressing concern over rising inflation, the RBI today said, “Besides oil prices there are some underlying inflationary pressures impacting inflation in India.”

Reacting to the RBI measures, Indian Banks Association chief M.B.N Rao said RBI’s announcement would certainly make the borrowing costlier. The banks would also have to increase their deposit rates, bankers said. Today’s measures would suck up around Rs 15,000-20,000 crore of liquidity from the banking system.

The RBI said while the repo rate was being increased with immediate effect, the hike in CRR would come in two tranches of 0.25 per cent each, first from July 5 and then on July 19.

Indicating tougher times for consumers, bankers said that interest rates could rise between 0.5-1.0 per cent for housing, car and personal loans.

Announcing the decision, the RBI said the move is “somewhat painful” but timely contraction of money supply has to be viewed in the context of new reality of high and volatile energy prices, which is not a temporary phenomenon any longer.



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