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RBI raises repo rate to control inflation
Oct 30, 2013

Due to the fiercest price pressures in Asia, the RBI has lifted its policy repo rate by 25 basis points (bps) to 7.75 percent. But overall WPI (wholesale price index) inflation is expected to remain higher than current levels through most of the remaining part of the year. 

Earlier in his second quarter review of the monetary policy for FY14, RBI has however, cut the marginal standing facility rate for banks to 8.75 per cent. This is the additional window for banks to borrow from the RBI when they exhaust limits under the repo window. The moves were meant to encourage banks to keep EMIs unchanged for purchases of cars, houses and even educational loans. But bankers indicated that they were planning to raise rates.

Further India's annual food inflation accelerated to 18.4 percent in September, its highest since mid-2010, pushed up by prices of vegetables including onions and stirring public discontent ahead of national elections which must be held by next May.

However, the economy grew at just 4.4 percent in the June quarter, its slowest since early 2009. The 5 percent growth rate recorded in the last fiscal year through March was the weakest in a decade.

The RBI expects the economy to grow 5 percent again in the current fiscal year that ends in March, below its earlier forecast of around 5.5 percent but still above many private-sector forecasts.

 


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