RBI increases policy rates

The Reserve Bank of India (RBI) on Tuesday increased key lending rates to rein in increasing inflation figures and in turn making loans costlier.

The repo rate, at which the federal bank provides credit to nationalised banks, has been hiked by 0.50 percentage points (50 basis points or bps) to 7.25 percent.?

The reverse repo rate has also gone up by 0.50 percentage points to 6.25 per cent.?The reverse repo rates from now onwards will be 100 basis points below the repo rate as a rule.

Explaining the increase,? RBI Governor D Subbarao said, “Global commodity prices have surged in recent months and are likely to remain firm suggesting higher inflation will persist and may even get worse. The headline and core inflation have shot past the most pessimistic forecasts in the past few months.””