The Reserve Bank of India (RBI) on Tuesday increased the policy rates to rein in increasing inflation. The repo rate, at which the RBI provides credit to banks, has been hiked by 0.50 percentage points (50 basis points or bps) to 7.25 per cent. The reverse repo rate, which from now onwards will be 100 basis points below the repo rate as a rule, has also gone up by 0.50 percentage points to 6.25 per cent.
The following are the highlights of the Monetary Policy Statement for 2011-12 by RBI governor D Subbarao:
• Short term lending rate (repo) hiked by 50 percentage point to 7.25 per cent.
• Repo rate to be only effective policy rate to better signal monetary policy stance from now on.
• Reverse repo to be fixed 100 percentage point lower than the repo rate.
• Short-term borrowing rate (reverse repo) up by 50 percentage point to 6.25 per cent.
• Cash reserve ratio (CRR) and bank rate left unchanged at 6 per cent each.
• Interest rates on savings bank deposits hiked to 4 per cent from 3.5 per cent.
• Economic growth projected lower at 8 per cent for FY12.
• WPI inflation projection lowered to 6 per cent.
• Objective is to contain inflation by curbing demand-side pressures.
• Favours aligning of fuel prices with international crude prices to avert widening of fiscal deficit.
• Banks to get a new overnight borrowing window under Marginal Standing Facility at 8.25 per cent.
• Likelihood of oil prices moderating significantly is low.
• Malegam Committee recommendations on MFI sector broadly accepted.
• Bank loan to MFIs on or after April 1, 2011, will be treated as priority sector loans.
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