RBI raises policy rates by 25 bps

17 Mar 2011

1

The Reserve Bank of India (RBI) today announced a 25 basis point increase in its policy rates, to further tighten money flows and kept pressure on rising inflation rate.

RBI raised the repo rate (the repurchase rate of government bonds) under the liquidity adjustment facility (LAF) to 6.75 per cent from 6.5 per cent with immediate effect. The reverse repo rate also stands raised by 25 basis points to 5.75 per cent from 5.5 per cent.

RBI expects the 25 bps increase in the repo rate to continue to help manage inflationary pressures and rein in demand-side inflationary pressures with minimum risks to growth.

RBI said it would persist with the current anti-inflationary stance so as to check the inflationary expectations and contain the spillover of food and commodity prices into more generalised inflation.

While the wholesale price-based inflation moderated slightly in January, headline WPI price inflation reversed in February, accompanied by a sharp increase in non-food manufactured products prices.

Also, the prices of select protein sources such as milk and 'eggs, meat and fish' articles continued to remain high, reflecting structural demand-supply imbalances, RBI noted.

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