Date:March 17, 2011

RBI Credit Policy: Repo,Reverse Repo Rates Hiked By 25 bps As widely expected the Reserve Bank of India raised repo (rate at which it lends to banks) and reverse repo (rate at which it borrows) rates by 25 basis points each, taking repo to 6.75% and reverse repo to 5.75%. However, the CRR has been left unchanged at 6%. A poll of bankers and economists had shown that 70% of those polled expected the RBI to hike the repo rate by 25 bps to 6.75% and 65% expected a 25 bps hike in the reverse repo rate to 5.75%. The bank also raised March-end inflation forecast around 8% from 7% earlier, leaving GDP growth forecast unchanged at 8.6%. RBI, in its mid-term credit policy said that rising commodity prices was adding to GDP and inflation risk. Also, this upside risk to inflation has stemmed from high crude prices, the report stated adding that industrial production (IIP) continued to be volatile RBI had raised policy rates seven times since March, 2010, with a hike of 175 basis points in short-term lending (repo) rate and 225 basis points in short-term borrowing (reverse) repo rate in its bid to arrest inflation. Data earlier in the week showed annual inflation accelerated unexpectedly to 8.31 percent in February, from 8.23 percent the previous month, defying forecasts of a slowdown. While food inflation has fallen from peaks of 20 percent in early 2010, it remains stubbornly high at 9.42 percent.  The global scenario, the Reserve Bank said portrayed a mixed picture and was likely to persist with current anti-inflationary stance. Further, the report stated that though it was too early to assess the impact on Japan disaster, investment momentum may be slowing down.