RBI hikes interest rates again by 0.25%, EMIs to go up further

The central bank, however, slashed the Marginal Standing Facility (MSF) rate by 0.25 to 8.75 percent.

Updated: Oct 29, 2013, 12:13 PM IST

Zee Media Bureau

New Delhi: The Reserve Bank on Tuesday hiked the repo rate by 0.25 percent to 7.75 percent in its second quarter monetary policy review in a bid to anchor inflationary expectations.

The central bank, however, slashed the Marginal Standing Facility (MSF) rate by 0.25 to 8.75 percent. The RBI has left the Cash Reserve Ratio (CRR) unchanged at 4 percent.

The policy stance and measures, RBI Governor Raghuram Rajan said, "are intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth.

"These will help strengthen the environment for growth by fostering macroeconomic and financial stability. The Reserve Bank will closely monitor inflation risk while being mindful of the evolving growth dynamics," he said.

The central bank reduced the growth forecast for the current fiscal to 5 percent from 5.5 percent projected earlier. Economic growth fell to a decade-low of 5 percent in the previous financial year.

In his first policy review last month, Rajan had surprised the markets by increasing the repo rate by 0.25 percent in a bid to check inflation.

An RBI study of professional forecasters said the average WPI inflation will climb up to 6 percent from the earlier median expectation of 5.3 percent, while on the growth front, they reduced the projection for the current fiscal to 4.8 percent from 5.7 percent earlier.

High food prices, especially of onion and some other vegetables, pushed up September inflation to a seven-month high of 6.46 percent.

Inflation was 6.1 percent in August and 5.85 percent (revised upward from 5.79 percent) in July. In September last year, it was 8.07 percent.

The sharpest increase was in onion prices, which jumped 322.94 percent in September, over the same month last year.

Onion prices in some cities have gone up as high as Rs 100 per kg, adding pressure on household expenses.

Regarding the current account deficit, which was one of the primary reasons for the depreciating rupee, the RBI said recent trade data suggests it will improve in the second quarter. The forecasters project it to come down to 3.5 percent.