The Reserve Bank of India (RBI) hiked the interest rates on Tuesday for a fourth time this year in a fresh bid to tame double-digit inflation.
India’s inflation rate is now the highest among the G-20 economic powers.
The central bank lifted the repo rate by 25 basis points (bps) to 5.75%, in line with expectations, but raised the reverse repo rate by 50 bps to 4.50%.
Reserve Bank of India (RBI) governor D Subbarao with deputy governor Subir Gokran during the credit policy meeting at RBI headquarters in Mumbai on Tuesday. Santosh Hirlekar / PTI photo
The reverse repo is the rate at which the central bank absorbs liquidity against government securities while the repo is the rate at which it provides money to banks.
First Quarter Review of Monetary Policy 2010-11 (Full Text)
Tuesday’s quarterly review came at a time when the economy is projected to grow at 9.5%, factory output continues to increase, albeit at slower rates, corporate profits rise and foreign investors pour money into local stocks. However, high inflation is casting a shadow on this benign situation and threatens to destabilize the economy and its pace of growth.
Following is a timeline of changes since December 2008
27 July 2010 | Concerned about ‘high inflation’, the Reserve Bank of India has hiked its key policy rates by 0.25% and 0.50% respectively even as it said that inflation, by the end of the fiscal, will be more than what it expected earlier. Read story
26 July 2010 | Banker’s Trust Column | Policy rates to go up, corridor may shrink
Edit | A clear task for RBI
3 July 2010 | The central bank hikes repo and reverse repo rates to 5.5% and 4%, respectively; will revise growth projections too. Read story
Banker’s Trust Column | Another rate hike on the cards
Banker’s Trust Column | No rate hike now, but likely in July
20 April 2010 | The RBI action is cheered by markets; governor D Subbarao leaves himself room for further rate action. Read Story
19 March 2010 | The central bank sprang a surprise by increasing two key policy rates almost exactly a month ahead of schedule, a sign that it is now less focused on supporting the economic recovery and more concerned about resurgent inflation. Read story
Banker’s Trust Column | Expect another round of rate hikes in April
20 April 2009 | The central bank cut two key policy rates through which it controls short-term interest rates. The repo rate, which it charges banks to borrow overnight money, and the reverse repo rate, which it pays to borrow overnight money from banks, have both been brought down by 25 basis points. Read story
Banker’s Trust Column | Now, banks will have no choice but to cut rates
05 March 2009 | The RBI cut its two key policy rates by 50 basis points each, after the equity and bond markets had closed for trading. One basis point is one-hundredth of a percentage point. Read story
02 January 2009 | In a coordinated move, the Union government and the central bank announced a series of measures aimed at reducing borrowing costs, improving the flow of credit in a slowing economy and helping sectors that have been the worst hit by the current downturn. Read story
06 December 2008 | The RBI has slashed both its repo and reverse repo rates by 100 basis points each, effective 8 December, and unveiled a host of measures as part of its stimulus package to “step up demand and arrest the growth moderation”. Read story