The RBI today raised the repo rate and the reverse repo rate by a quarter percentage point to 5.25% and 3.75%, respectively while also raising the CRR by 25 bps to 6%. This was the second increase in the policy rates by the RBI in as many months as inflation hovers around double-digit mark.
The Reserve Bank of India’s (RBI) move to raise key policy rates by 25 basis points complements the Government’s policy to rein in stubbornly high inflation and bolster economic growth, Finance Minister Pranab Mukherjee said in a statement on Tuesday.
"India has now bounced back, with growth seemingly back on track and inflation, though high, on a clear downward trend. Hence, I believe that it is time to move back towards neutral policy rates, that is, rates that should prevail when an economy is stable and on track," Mukherjee said in a statement.
India’s central bank also decided to increase the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 5.0 per cent to 5.25 per cent with immediate effect. The bank also increased reverse repo rate under the LAF by 25 basis points from 3.5 per cent to 3.75 per cent with immediate effect. Bank Rate however was left unchanged at 6.0 per cent.
As a result of the increase in the CRR, about Rs 12,500 crore of excess liquidity will be absorbed from the system.