Date:25/06/2008 URL: http://www.thehindu.com/2008/06/25/stories/2008062557600100.htm

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RBI hikes repo rate, CRR

Oommen A. Ninan

Effort to contain inflation; housing and car loans may become dearer

Continuous vigil over monetary and macro-economic developments warranted
Pass-through of international crude prices to domestic prices reflected in inflation

MUMBAI: In an effort to contain surging inflation and inflationary expectations, the Reserve Bank of India (RBI) on Tuesday raised the repo rate (a key short-term indicative rate) from 8 to 8.50 per cent with immediate effect.

The cash reserve ratio (CRR) is also being increased by 50 basis points to 8.75 per cent in two stages — 8.50 per cent from July 5 and 8.75 per cent from July 19.

“In view of the criticality of anchoring inflation expectations, a continuous heightened vigil over ensuing monetary and macro-economic developments is warranted to enable swift responses with appropriate measures as are necessary, consistent with the monetary policy stance,” the RBI said.

It said the escalation in inflation last week mainly reflected the pass-through of international crude prices to domestic prices effected on June 5, 2008.

“Unlike in some mature economies, the pass-through is not occurring on a continuous basis in developing economies, including India. Thus, the policy response to the escalation in crude prices could be somewhat similar to other countries but tailored to suit our conditions,” the RBI said.

Stringent measures

PTI reports:

The stringent measures would suck up an estimated Rs. 20,000 crore, possibly making housing, car and personal loans dearer.

The RBI action followed the RBI Governor’s discussions with the Prime Minister and Finance Minister.