31 january 2007

rbi takes repo rate to four-year high of 7.50 per cent
mumbai: taking a cue from the rising inflation, the reserve bank of india today announced a 0.25-per cent increase in its key short-term lending rate, the repo rate taking it to 7.50 per cent, the highest in nearly four years.

repo rate is the rate at which the rbi buys securities to infuse liquidity in the system. the move is expected to help rein in inflation and cool the strong demand for loans.

all other key rates remain unchanged — the bank rate at 6 per cent, reverse repo rate at 6 per cent and crr at 5.5 per cent and personal home loans are expected to remain unaffected.

though inflation, which had reached a two-year high at 6.12 per cent in the week of 6 january, before moderating to 5.95 per cent in the following week, the rbi said in its macro-economic review on 29 january, that the underlying inflationary pressures, caused by demand-supply mismatch in food articles, remain unabated. against this background, the outlook for inflation assumes criticality in terms of policy monitoring and action.

in the third quarter review of the monetary policy, it said prices of food articles will have considerable impact on headline inflation over the rest of the year and that the seasonal decline in prices of food articles in the second half of the year had been below normal.

prices of manufactured goods are firming up and were close to the headline level by the end of december.

the rbi also revised upwards, the gdp growth to 8.5 to 9 per cent in 2006-07 as compared to 8 per cent projected in mid- term review and 7.5 to 8 per cent (see: gdp growth rate revised to 9 per cent for 2005-06) in the annual policy statement and first quarter review.

with growth rates of 9.1 per cent in the first half of 2006-07, the policy review said that growth momentum would be sustained in the third quarter with some setbacks in agriculture sector.

other reports on finance diary