To curb rising inflation, the RBI raised repo and reverse repo rates by 25 basic points (6.5% and 5.5% respectively) in its first monetary policy review of 2011. This move is in line with what analysts expected in the last few days. The apex bank also warned that higher food prices could become fixed if steps to improve output are not taken.
The cash reserve ratio (which is the percentage of their deposits that banks must keep with the RBI as cash) and statutory liquidity ratio (SLR) have been left unchanged. Thus, CRR and SLR continue to stand at 6% and 24%, respectively.
The Reserve Bank of India also upped its inflation forecast to 7% from the current 5.5%. This is likely to moderate in Q1FY12, RBI says. "Policy action will contain spill over to generalised inflation." It also stated that the GDP growth rate could decline in FY12.
Experts believe that the RBI will continue to raise rates going forwards. C Rangarajan, chairman of the Prime Minister's Economic Advisory Council said RBI has taken the right decision and hopes that it will continue to raise rates going forward.
The brokerage community too finds this to be a well-balanced move. When contacted, Sushil Finance said the RBI had tried to balance growth and inflation. "RBI is waiting for higher inflation." Hike of interest rate in month of April is highly possible, they say.
