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RBI hikes repo rate by 25 basis points, CRR unchanged

Oct 29, 2013 11:22 AM IST Business Business

New Delhi: The Reserve Bank of India on Tuesday hiked repo rate by 25 basis points from 7.50 per cent to 7.75 per cent. The RBI has kept the Cash Reserve Ratio (CRR) unchanged at 4 per cent.

With the rupee having stabilised, the RBI lowered its Marginal Standing Facility (MSF) rate a further 25 bps to 8.75 per cent, which eases liquidity in the banking system and returns the gap between the repo and MSF rates to the usual 100 basis points.

RBI Governor Raghuram Rajan while announcing the credit policy said the Wholesale Price Index (WPI) and Consumer Price Index (CPI) to remain elevated ion months ahead. The RBI has for the first time gave the CPI forecast.

"Overall WPI inflation is expected to remain higher than current levels through most of the remaining part of the year, warranting an appropriate policy response," Rajan said.

Rajan took office in early September and stunned markets in his first policy review just weeks later by raising interest rates to combat fierce price pressures dogging Asia's third-largest economy.

Annual food inflation accelerated to 18.4 per cent in September, its highest since mid-2010, pushed up by prices of vegetables including onions and stirring public discontent ahead of national elections which must be held by next May.

India's economy grew at 4.4 per cent in the June quarter, the slowest since early 2009. The 5 per cent growth rate recorded in the last fiscal year through March was the weakest in a decade.

The RBI said it expects the economy to grow at 5 per cent in the current fiscal year that ends in March.

The headline wholesale price index (WPI) unexpectedly hit a seven-month high in September of 6.46 per cent as food prices surged, while the consumer price index jumped an annual 9.84 per cent, spurring expectations for another rate hike.

(With additional information from Reuters)

The growth rate has also come down from 5.5 per cent to 5 per cent this fiscal.