RBI surprises with 0.25% rate hike; loans to be costlier
Zee Media Bureau
New Delhi: The Reserve Bank of India (RBI) in its mid-quarter review of monetary policy on Friday raised the repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.25 percent to 7.5 percent with immediate effect.
The central bank has however slashed the Marginal Facility Lending by 0.75 percent. The RBI had lifted the MSF to 10.25 percent in mid-July to stabilise a declining rupee. The bank has kept the Cash Reserve Ratio (CRR) unchanged at 4 percent.
Consequently, the reverse repo rate under the LAF stands adjusted to 6.5 percent and the Bank Rate stands reduced to 9.5 percent with immediate effect. With these changes, the MSF rate and the Bank Rate are recalibrated to 200 basis points above the repo rate.
The RBI has said that Inflation continues to be worrisome and there is no room for complacency. "The need to anchor inflation and inflation expectations has to be set against the fragile state of the industrial sector and urban demand. Keeping all this in view, bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately," Rajan said in the mid-quarter policy review statement.
On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:
1. Reduce the marginal standing facility (MSF) rate by 75 basis points from 10.25 percent to 9.5 percent with immediate effect;
2. Reduce the minimum daily maintenance of the cash reserve ratio (CRR) from 99 per cent of the requirement to 95 percent effective from the fortnight beginning September 21, 2013, while keeping the CRR unchanged at 4.0 percent; and
3. Increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.25 percent to 7.5 percent with immediate effect.
Since the First Quarter Review (FQR) in July, a weak recovery has been taking hold in advanced economies, with growth picking up in Japan and the UK and the euro area exiting recession. However, activity has slowed in several emerging economies, buffeted by heightened financial market turbulence on the prospect of tapering of quantitative easing (QE) in the US.