Mumbai, May 3: In a bid to check inflation, Reserve Bank of India on Tuesday raised its short term lending (repo) rate by 50 basis points to 7.25 per cent, while lowering the economic growth projection to 8 per cent for the current fiscal.  The RBI has also increased the saving bank rate by 50 basis points to 4 per cent to give higher returns to depositors in the wake of high inflation.  The reverse repo, the rate at which bank park funds with RBI, has been raised by 50 basis points to 6.25 per cent.  RBI Governor D Subbarao announced these measures as part of annual credit policy to contain inflation, which is hovering around 9 per cent, and sustain economic growth in the medium-term.  RBI has pegged GDP growth rate for the current fiscal at 8 per cent against the government's projection of 9 per cent. The economy grew by 8.6 per cent in 2010-11.  Keki Mistry, Vice Chairman & CEO, HDFC Limited said, "50 basis point hike has not come as a surprise, bonds yields haven't changed much. Resurgence of inflation in first quarter has taken a lot of people by surprise."  The rate rise was its ninth since March 2010, and exceeded market and economists' expectations for a 25 basis point rise, although the case for stronger action had been building since March headline inflation reached nearly 9 percent.  Standard Chartered Bank in a statement said, "RBI's hawkish stance will continue. There will be more tightening going ahead."  Factoring in the many headwinds such as the very uncomfortable inflation, which stood at 8.98 in March and the rising crude and commodity prices, the Governor pegged down GDP growth by over 1 per cent between 7.4 and 8.5 percent for the current fiscal. 

Lastupdate on : Tue, 3 May 2011 21:30:00 Makkah time
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