25 july 2006

no surprises as rbi hikes rates by 25 basis points
rbi chief y v reddy has decided not to pull off any surprises this time around and has announced a 25 basis points hike in key interest rates, which is in line with market expectations. strong economic growth, higher inflation and rising oil prices had made a rate hike a near certainty, though a section of the markets were hoping for status quo following mild statements on inflation by the rbi yesterday.

the reverse repo rate — the rate at which rbi borrows money — has been raised by 25 basis points to 6 per cent per annum while the repo rate — the rate at which the rbi lends money — has been raised by a matching 25 basis points to 7 per cent.

bank rate — more of a reference rate used by banks to benchmark their lending rates — has once again been left unchanged at 6 per cent. bank rate is considered as the signaling rate of the rbi on its longer term-interest rate outlook.

the cash reserve ratio (crr) for commercial banks has also been left unchanged at 5 per cent.