That the apex bank of India would increase the interest rates has not come as a surprise in business circles in India. With inflation hovering above 10 percent since the last few months, it was expected anytime.
The Reserve Bank of India (RBI) has increased the repo rates by 0.25 percent to 5.75 percent and the reverse repo rates by 0.50 percent to 4.50 percent. Repo is the rate at which RBI lends to other banks and reverse repo is the rate at which it absorbs excessive liquidity from the system.
Despite tight liquidity in the banking system, RBI has left the cash reserve ratio (CRR) for banks untouched at 6 percent, which could raise concerns within industrial circles as it would increase pressure on interest rates charged by the banks.
The RBI is trying to play a tight balancing act by trying to manage the runaway inflation as well as ensuring growth rates. With the next monetary review scheduled in September, another increase in rates could be on the cards, if inflation is not under control by then.
Fibre2fashion News Desk - India
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