New Delhi, July 26 (ANI): The Reserve Bank of India (RBI) hiked short-term lending and borrowing rates sharply by 50 basis points for the third time in three months today to control inflation.
This move of the apex bank of the country would make all personal and corporate loans more expensive.
With an increase of 0.50 percent, the short-term lending (repo) rate has been hiked to 8 percent and the short-term borrowing (reverse repo) rate has also been increased by a similar margin to 7 percent.
Announcing the quarterly review of the monetary policy, RBI Governor D Subbarao said: "Notwithstanding signs of moderation, inflationary pressures are clearly very strong... inflation continues to be the dominant macroeconomic concern."
"On the basis of this assessment, it has been decided to increase policy repo rate by 50 basis points from 7.5 to 8 per cent with immediate effect," he added.
The RBI has, however, retained the Cash Reserve Ratio (CRR) at 6 percent.
Repo rate is the rate at which the banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, the borrowing from RBI becomes more expensive.
Reverse Repo rate is the rate at which the RBI borrows money from banks. Banks are always happy to lend money to the RBI since their money is in safe hands with a good interest.
An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system.
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. (ANI)
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