RBI hikes repo, CRR by 50 bps each; loans may become dearer

[ankitgokani]

source:RBI hikes repo, CRR by 50 bps each; loans may become dearer- Policy-Economy-News-The Economic Times

MUMBAI: Challenged by unrelenting inflationary pressures, Reserve Bank today announced stringent measures of hiking mandatory cash reserve of the banks and its short-term lending rate to them to suck up an estimated Rs 20,000 crore -- a move that could make loans dearer for housing, car and personal expenses as also to the industry.

Announcement of hiking cash reserve ratio by 50 basis points and the short-term lending (repo) rate by a similar margin comes close on the heels of RBI Governor Y V Reddy discussing with Prime Minister Manmohan Singh and Finance Minister P Chidambaram the prevailing inflation scenario.

Reflecting the Finance Ministry's view that monetary policy would be the first line of defence against inflation that has surged to a 13-year high of 11.05 per cent, the RBI after intense consultation today pronounced the new measures, part of which would be effected in installments.

In a precursor to raising the CRR from 8.25 per cent to 8.75 per cent in two installments beginning July 5 and the repo rate from 8.0 per cent to 8.5 per cent with immediate effect, Reddy had said yesterday that the apex bank would do every thing to ease the inflationary pressures.

Expressing concern over rising inflation, RBI said, "Besides oil prices there are some underlying inflationary pressures impacting inflation in India."