India hikes interest rates to check inflation

Mar 17, 2011, 8:39 GMT

New Delhi - India's central bank Thursday raised its short- term lending and borrowing rates by 25 basis points each in a bid to contain inflation.

The Reserve Bank of India (RBI) hiked the repurchase or repo rate, the interest charged by the federal bank on loans to commercial banks, to 6.75 per cent.

The reverse repo, the rate at which the central bank borrows from commercial banks, was increased to 5.75 per cent.

The cash reserve ratio, or bank rate, which is the amount of cash that banks have to park with the central bank, was left unchanged at 6 per cent.

The tightening of lending conditions came as the RBI raised its inflation projection to 8 per cent for March, as against its earlier estimate of 7 per cent.

'After a slight moderation in January, headline WPI (wholesale price index) inflation reversed in February 2011 accompanied by a sharp increase in non-food manufactured products inflation,' the bank said in its mid-quarterly review.

The overall inflation increased marginally in February to 8.31 per cent from 8.23 per cent a month ago.

The key policy rates were hiked for the eighth time since the bank decided to tighten its monetary policy last January and rein in inflation which touched 10.55 per cent in June.

The RBI said it would continue with its policy to contain the rise in prices.

'Based on current and evolving growth and inflation scenario, the Reserve Bank is likely to persist with the current anti-inflationary stance,' it said.