RBI hikes repo, reverse repo rates by 25 bps

The Reserve Bank of India yesterday hiked its short-term lending and borrowing rates - the repo and reverse repo rates - by 25 basis points each to 5.0 per cent and 3.5 per cent, respectively, with immediate effect.

In an announcement made on its website late in the evening, the RBI said it was increasing the repo rate, at which it lends to banks under the liquidity adjustment facility (LAF), as a part of the calibrated exit strategy initiated in the Second Quarter Review in October 2009 and carried forward in the Third Quarter Review in January 2010.

Banks pay the repo rate to borrow from RBI and receive the reverse repo rate for parking surplus funds with the central bank.

''There have been significant macroeconomic developments since the Third Quarter Review of Monetary Policy in January 2010,'' the bank noted.

''On the growth front, the advance estimates by the Central Statistical Organisation (CSO) for 2009-10 and for the third quarter of 2009-10 suggest that the recovery is consolidating. Data on industrial production currently available up to January 2010 show that the uptrend is being maintained.

 The manufacturing sector, in particular, has recorded robust growth. The sharp acceleration in the growth of the capital goods sector points to the revival of investment activity,'' the central bank said.