You are here: Rediff Home » India » Business » Photos
Search: The Web
  Email  |    Discuss  |   Get latest news on your desktop


Credit Policy: RBI hikes interest rates

July 29, 2008
Challenged by unrelenting inflationary pressures, the Reserve Bank of India on Tuesday 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 8,000 crore (Rs 80 billion).

Presenting the first quarter review of the annual statement on Credit and Monetary Policy for the year 2008-09 on Monday, RBI Governor Y V Reddy hiked cash reserve ratio by 0.25 per cent to 8.75 per cent and the short-term lending (repo) rate by 0.50 pre cent to 9.00 per cent.

According to analysts the move could make loans dearer for housing, car and personal expenses as also to the industry.


  • Bank Rate kept unchanged.
  • Reverse Repo Rate under LAF kept unchanged.
  • Repo Rate increased by 50 basis points from 8.5 per cent to 9.00 per cent.
  • Cash Reserve Ratio to be increased by 25 basis points to 9.0 per cent with effect from the fortnight beginning August 30, 2008.
  • GDP growth projection for 2008-09 revised from the range of 8.0-8.5 per cent to around 8.0 per cent, barring domestic or external shocks.
  • While the policy actions would aim to bring down the current intolerable level of inflation to a tolerable level of below 5.0 per cent as soon as possible and around 3.0 per cent over the medium-term, at this juncture a realistic policy endeavour would be to bring down inflation from the current level of about 11.0-12.0 per cent to a level close to 7.0 per cent by March 31, 2009.
  • While there are early signs of some moderation in money supply and deposit growth, they continue to expand above the indicative projections warranting continuous vigilance and appropriate and timely policy responses.
  • In view of the evolving environment of heightened uncertainty in global markets and the dangers of potential spillovers to domestic markets, liquidity management will continue to receive priority in the hierarchy of policy objectives over the period ahead.
  • Barring the emergence of any adverse and unexpected developments in various sectors of the economy, assuming that capital flows are effectively managed, and keeping in view the current assessment of the economy including the outlook for growth and inflation, the overall stance of monetary policy in 2008-09 will broadly continue to be:
  • To ensure a monetary and interest rate environment that accords high priority to price stability, well-anchored inflation expectations and orderly conditions in financial markets while being conducive to continuation of the growth momentum.
  • To respond swiftly on a continuing basis to the evolving constellation of adverse international developments and to the domestic situation impinging on inflation expectations, financial stability and growth momentum, with both conventional and unconventional measures, as appropriate.
  • To emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.

    Image: Reserve Bank of India Governor Y V Reddy addressing the media in Mumbai. | Photograph: Pal Pillai/AFP/Getty Images

    Also read: Want to earn like Warren Buffett? 24 tips

  • © 2008 India Limited. All Rights Reserved.Disclaimer | Feedback