India's key interest rate hiked to ease inflation

Wednesday, 31 January 2007, 06:00 Hrs
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Mumbai: Interest rates are set to rise in India with the Reserve Bank of India (RBI) hiking its repurchase (repo) rate, its main short-term lending rate, by 25 basis point in a bid to control rising inflation.

The apex bank said in a statement here that it had raised the repo rate, the interest rate at which the central bank lends short-term funds to banks against securities - to 7.50 percent from the 7.25 percent.

This is the highest in the last four years and it has been revised upward for the fifth time in a year to mainly rein in inflation, which has jumped to over six percent against the central bank's tolerance level of around five percent.

RBI Governor Y.V. Reddy, however, kept the central bank's other borrowing rate, called the reserve repo rate, as also the cash reserve ratio (CCR) unchanged at 6 percent and 5.5 percent respectively.

In a statement issued after a quarterly review of its monetary policy, RBI said prices of food articles, which did not witness the usual seasonal decline this winter, would impact inflation for the rest of the year.

"To the extent the current inflationary pressures are attributable to monetary conditions, it is essential to undertake appropriate measures, in continuation of those already taken and in the light of anticipated developments."

Source: IANS
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