Friday, September 16, 2011

Reserve Bank of India Hikes Repo Rate 25bps to 8.25%

The Reserve Bank of India [RBI] increased its repo rate by 25 basis points to 8.25% from 8.00% and raised the reverse repo rate to 7.25% from 7.00%.  The RBI said: "The monetary tightening effected so far by the Reserve Bank has helped in containing inflation and anchoring inflationary expectations, though both remain at levels beyond the Reserve Bank's comfort zone.  As monetary policy operates with a lag, the cumulative impact of policy actions should now be increasingly felt in further moderation in demand and reversal of the inflation trajectory towards the later part of 2011-12.  As such, a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore, imperative to persist with the current anti-inflationary stance. Going forward, the stance will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments."

The Reserve Bank of India increased the repo rate by a surprise 50 basis points at its previous meeting to 8.00%, having increased 25 basis points in June, and 50 basis points during the May meeting.  India's key inflation measure, the wholesale price index, increased 9.78% in August, compared to 9.22% in July, 9.44% in June, 9.06% in May, 8.66% in April, and 8.98% year on year in March, exceeding the Bank's previous estimate of 8%.  India reported annual GDP growth of 7.7% in the June quarter, compared to 7.8% in the March quarter this year, and 8.3% in the previous quarter.


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