RBI hikes repo and CRR rates
Posted: 2007-03-31 00:00:00+05:30 IST
Updated: Mar 31, 2007 at 0000 hrs IST
Mumbai, Mar 30: The Reserve Bank of India (RBI) on Friday made it clear that it would pursue its agenda of attacking inflation—currently at 6.46%—with a vengeance. The central bank surprised markets by unveiling a series of rate hikes on Friday, the last working day of this financial year, to further suck out liquidity from the market.
The repo rate, the rate at which RBI lends short-term money to banks, has been increased by 25bps to 7.75% with immediate effect, along with a cash reserve ratio (CRR) hike of 25bps each in two phases (starting April 14 and April 28), taking it to 6.5% from the current 6% . The CRR hike will remove over Rs 15,000 crore from the system.
Along with these steps, the interest rate applicable on eligible CRR balances has also been halved to 0.5% beginning April 14. However, the reverse repo rate (the rate at which banks park short-term funds with RBI) has been left unchanged at 6%.
Though the latest round of measures are sure to spark a series of lending rate hikes by banks, finance minister Palaniappan Chidambaram said in Mumbai that the RBI had consulted the government on the moves, and he supported them.
With the latest hikes, the RBI has now raised short-term rates (both reverse repo and repo) six times since January 2006, and hiked the CRR three times since December to arrest lending, which has grown at an average of 30% in the past three years—the fastest pace since the central bank started collating data in 1971.
| Repo Rap |
|
Discuss this story on expressindia forums
|
|
Post Comments
Comments: (Limit 3,000 characters)
Comments
» Inflation in India
Posted by Syed Zahid Ahmad on 2008-08-02 21:21:59.814183+05:30
With recent trend of increased capital inflow into India the aggregate deposits by Scheduled Commercial Banks (SCBs) has increased from 80.7% in 2005-06 (Rs. 21,09,049 crores) to 102% (Rs. 31,96,939 crores) of GDP at factor cost by 2007-08. With increased deposits, the bank credits has also increased from Rs. 15,07,077 crores in 2005-06 to Rs. 23,61,914 crores by 2007-08 reflecting 75.6% of GDP at factor cost in 2007-08 as credit against 57.7% in 2005-06. This indeed is a situation, where our economists, financial sector regulators and bankers need to review the policy and practices adopted by RBI as we take interest as a major tool to control liquidity but we hardly evaluate the far reaching consequences of interest in our economic process. Our real term GDP growth rate (= GDP growth rate at factor cost – rate of inflation) has considerably declined from 5.2% in 2005-06 to 2.9% by 2006-07 and fell down to1.6% by 2007-08. As the interest increases the cost of credit and output, even the GDP value is inflated through interest. Thus the higher GDP growth rate like 9% just reflects 1.6% real term GDP growth rate if inflation rate is 7.4%. The liquidity theory of J. M. Keynes is failed here to guide RBI optimize these opportunities. The practical approach of RBI to curb the rate of inflation by increasing the rate of interest may not control inflation and might lead towards stagflation as the prices are continue to increase along with purchasing power of the depositors, but the expenditure, investment and net GDP growth rate is falling due to costlier credit and interest based deposit schemes.
» Correction in my Comments
Posted by Syed Zahid Ahmad on 2008-08-17 20:00:33.607002+05:30
The follwing texts of my comments be kindly withdrawn becasue it has flaws "Our real term GDP growth rate (= GDP growth rate at factor cost – rate of inflation) has considerably declined from 5.2% in 2005-06 to 2.9% by 2006-07 and fell down to 1.6% by 2007-08. As the interest increases the cost of credit and output, even the GDP value is inflated through interest. Thus the higher GDP growth rate like 9% just reflects 1.6% real term GDP growth rate if inflation rate is 7.4%. "
» REPO
Posted by N.C.Majumdar on 2008-07-19 13:01:09.32816+05:30
Kindly let me know latest repo rate and date of publication of rbi monitory policy(latest)
|
