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Updated: September 17, 2011 03:03 IST

RBI hikes key rates to contain inflation

Special Correspondent
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The Reserve Bank on Friday raised key interest rates by 25 basis points, its 12th such hike since March 2010. File photo
The Hindu The Reserve Bank on Friday raised key interest rates by 25 basis points, its 12th such hike since March 2010. File photo

In a move to contain persisting inflationary pressure, the Reserve Bank of India (RBI) on Friday hiked the indicative short-term policy rate (repo rate) by 25 basis points from 8 per cent to 8.25 per cent with immediate effect.

Consequently, the reverse repo rate will stand automatically adjusted to 7.25 per cent and the marginal standing facility (MSF) rate to 9.25 per cent.

Repo rate is the rate at which banks borrow from the central bank and reverse repo is the rate at which banks park their funds with the RBI.

“With the likelihood of inflation remaining high for the next few months, rising inflationary expectations remain a key risk. This makes it imperative to persevere with the current anti-inflationary stance,” said RBI while increasing the rates. The central bank raised rates for the 12th time since March 2010.

Even as many indicators point to moderating growth, both headline and non-food manufactured products inflation were at uncomfortably high levels, said RBI, adding, “Crude oil prices remain high. Food price inflation persists notwithstanding a normal monsoon”.

Headline year-on-year wholesale price index (WPI) inflation rose from 9.2 per cent in July to 9.8 per cent in August 2011. Inflation in respect of primary articles and fuel groups edged up in August. Year-on-year non-food manufactured products inflation rose from 7.5 per cent in July to 7.7 per cent in August 2011 suggesting as yet persistent demand pressures.

“The oil marketing companies raised the price of petrol by Rs.3.14 a litre with effect from September 16. This will have a direct impact of 7 basis points to WPI inflation, in addition to indirect impact with a lag,” the RBI said.

However, the central bank said that inflationary pressures were expected to ease towards the later part of 2011-12. “Stabilisation of energy prices and moderating domestic demand should facilitate this process”.

After slight moderation in July, non-food manufactured products inflation rose again in August, suggesting continuing demand pressures. Global crude oil prices have remained elevated despite weakening of global recovery. Moreover, “there is still an element of suppressed inflation. Though, global oil prices have moderated, the pass-through to domestic prices remains incomplete.” Also, current administered electricity prices are yet to reflect increase in input prices, even as many states have initiated increases.

Food inflation is at near-double digit levels, despite normal monsoons, underlining the fact that it is being driven by structural demand-supply imbalances and cannot be dismissed as a temporary phenomenon. The inflation momentum, reflected in the de-seasonalised sequential monthly data, persists.

GDP growth decelerated to 7.7 per cent in the first quarter of 2011-12 from 7.8 per cent in the previous quarter and 8.8 per cent in the corresponding quarter a year ago. Agricultural growth has accelerated, but industry and services have decelerated. The index of industrial production (IIP) slowed from 8.8 per cent year-on-year in June to 3.3 per cent in July.

However, excluding capital goods, the growth of IIP was higher at 6.7 per cent in July compared with 4.4 per cent in June. Cumulatively, the IIP increased by 5.8 per cent during April-July 2011, compared with an increase of 9.7 per cent in the corresponding period of the previous year.

Monsoon rains so far have been normal. The first advance estimates for the 2011-12 kharif season point to a record production of rice, oilseeds and cotton, while the output of pulses may decline.

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All these inflation is because of abundant unaccounted black money in the market.Rising the interest rates by RBI will not affect the black money market.Goverment should make strong actions against persons who are creating artificial inflation by their black money.Other wise this problem can not be resolved.

from:  Raghupathi
Posted on: Sep 17, 2011 at 19:51 IST

Government of India and RBI there are not coordination between them .That affects conman people who has suffered financial crises. persisting inflationary pressure, the Reserve Bank of India (RBI) on Friday hiked the indicative short-term policy rate (repo rate) by 25 basis points from 8 per cent to 8.25 per cent with immediate effect. Government has no worries about inflation.Food inflation is at near-double digit levels, despite normal monsoons, underlining the fact that it is being driven by structural demand-supply imbalances and cannot be dismissed as a temporary phenomenon.Gov;t should understand an equal balance between growth rate and inflation . I would like to give a suggestion to RBI if you cannot control the inflation, RBI should apply another traditional instrument to control inflation

from:  Santosh Ragho Kaithwas
Posted on: Sep 17, 2011 at 11:48 IST

The 12th rate by RBI is unjustifiable. It is obvious that the earlier 11 rate hikes of RBI have failed to cause any abatement of inflation. One fails to understand as to prices of what the RBI thinks it is achieving by hiking rates. Will the prices of petro products come down? will the prices of milk,vegetables and fruits come down? Will the prices of commodities being will come down? Will the prices of articles under public distribution come down? The Govt on its part has done virtually nothing to bring down the prices. Except one reduction of indirect taxes on petro products nothing has been attempted on the fiscal front. The IIP numbers are disheartening. Investment is slowing down. Employment opportunities are disappearing.It is easy to cause an economic slow down.But recovery from economic slow down will be painful and irritably slow. Time serious thought is applied on sacrificing growth at the altar of inflation containment.

from:  B.Baskaran
Posted on: Sep 17, 2011 at 06:57 IST

RBI hikes key rates. This bring a hike in interest rates for the home loan. This will another burden for the common man. Food inflation is at near-double digit levels. The oil marketing companies raised the price of petrol. Totally the common man in INDIA must suffer. The salary class who are working withour pension are severly hit. The authorities of R B I , The finiancial adviors for the PM, UPA chairperson, MPs are not aware of common man's problems eventhough they are in common man's tax money. The must take away the pension scheme and increase the DA. There are people those who are not getting even medicial facililty.

from:  Narayanan
Posted on: Sep 17, 2011 at 05:33 IST
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