RBI hikes policy rates by 25 basis points to fight inflation

Continuing its efforts to check price rise, the Reserve Bank of India (RBI) today raised key short-term lending and borrowing rates by 25 basis points for the 10th time since March, 2010, a move that could make auto and home loans expensive.

While the short-term lending (repo) rate has been raised to 7.5 per cent, the borrowing rate has been hiked to 6.5 per cent. Subsequently, the marginal standing facility (MSF) has also gone up by 25 basis points to 8.50 per cent.

Other rates and ratios have been kept unchanged.

The policy initiative, the RBI said, "is expected to contain inflation and anchor inflationary expectations by reining in demand side pressures."

Inflation stood at over 9 per cent in May, much above the central bank's comfort level of 5-6 per cent.

The measures, the RBI said, would also help in mitigating the impact of "potentially adverse global developments."

The central bank further said it would continue with its anti-inflationary stance to arrest price rise.

"Based on the current and evolving growth and inflation scenario, the RBI will need to persist with its anti-inflationary stance of monetary policy," it said.