Second time in a row in two months, RBI raised its policy interest rate on tuesday.Inflation figures forced the central bank to act so firmly and hike the short-term lending (repo) rate by 0.25 per cent, a step that will make corporate and consumer loans more expensive.
There was no surprise in this announcement in the markets as the move was already expected by many, the hike in repo rate by 0.25 per cent to 7.75 per cent was alreay a much expected step and to bring down the cost of short-term funds for banks by slashing the marginal standing facility (MSF) rate by a similar quantum to 8.75 per cent.
Mr.Rajan said this policy stance and measures are introduced 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.
Reserve Bank also laid down the growth forecasts for current fiscal to 5 per cent from the earlier projection of 5.5 per cent, citing downside risk stemming from domestic constraints.In the first monetary policy the central bank projected the growth rate of 5.5 per cent for 2013-14
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