A recent press report said that the Reserve Bank of India has RBI raised its repo rate by 0.25 percentage points to 8.25 per cent and the reverse repo rate to 7.25 per cent. Policy rates are up by a cumulative 350 basis points since March 2010.
Reports said that the hike is due to the backdrop of a slowing economy. GDP growth in this fiscal is expected to slow down to about 7 per cent. The latest IIP (Index of Industrial Production) number was down to 3.3 per cent while inflation numbers in August were at 9.78 per cent.
According to reports the RBI has said that the inflation is above its comfort zone and that there is likely to be a moderation in demand and reversal of inflation towards the later part of 2011-12. The RBI also said that the monetary policy is acting with a lag.
The RBI also said that the hike could harden inflationary expectations, thereby diluting the impact of past policy actions.
It is, therefore, very important to persist with the current anti-inflationary position. This could lead to the downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments.
The RBI’s rate hike has made the new and also some of the existing home loans and other loan borrowers anxious about the chance of loans becoming dearer.