Reserve Bank of India (RBI) raised interest rates for the 10th time since the start of 2010, extending the longest streak of monetary tightening in a decade after inflation accelerated. It raised the key lending rate by a quarter-percentage point and said its stance remains "firmly anti-inflationary," hinting at more raises to come.
The Reserve Bank of India upped its lending rate, or repo rate, by 0.25 percentage point to 7.50.
The borrowing rate, or reverse repo rate, will also rise 0.25 percentage point so it remains one percentage point below the repo rate, at 6.50%. The marginal standing facility, the upper end of the RBI's rates corridor, will be at 8.50%.
"The monetary policy stance remains firmly anti-inflationary, recognizing that, in the current circumstances, some short-run deceleration in growth may be unavoidable in bringing inflation under control," the central bank said in its mid-quarter monetary policy review.
“The pattern in non-food manufactured products inflation is a matter of particular concern. Besides reflecting high commodity prices, it also suggests more generalized inflationary pressures (and that) rising wages and costs of service inputs are apparently being passed on by producers along the entire supply chain," the RBI said.
The central bank kept banks' cash reserve ratio and minimum bond holding ratio unchanged.
This move of RBI could make auto and home loans expensive, with having a successive impact on EMIs too.
Thursday's (16th June, 2011) move follows May inflation data Tuesday (14th June, 2011) that showed a sharp 9.06% on-year rise in the wholesale price index, up from April's 8.66% rise.
The RBI has been one of the most aggressive central banks in Asia , raising rates 10 times since March 2010. The repo rate has been raised a total of 2.75 percentage points and the reverse repo rate by 3.25 percentage points in all.
But Asian and emerging market central banks increasingly face tough choices between managing inflation and encouraging growth.
For example, Chinese authorities have demonstrated a willingness to sacrifice some growth to restrain prices, as inflation accelerated to its fastest pace in nearly three years in May. Economies around the globe are under strain as the eurozone debt crisis and recent economic data in the United States weigh on growth.
India's economic expansion slowed to its lowest pace in five quarters in January-March at 7.8%, versus 8.3% in the previous quarter. Recent data on factory output for April also confirmed the slowdown.
But the RBI said Thursday that loan growth and January-March corporate profit numbers don't suggest a sharp or broad-based slowdown.
The reason for RISING INFLATION is stated as rising Crude Prices, but ECONOMICS say that PRICES can RISE only if DEMAND is rising or if SUPPLY is tightened. But unfortunately, this time the SPIKE in CRUDE OIL PRICES was witnessed due to RISING TENSIONS in Gulf Countries and then the SPECULATION.
The reason for RISING INFLATION is stated as rising Crude Prices, but ECONOMICS say that PRICES can RISE only if DEMAND is rising or if SUPPLY is tightened. But unfortunately, this time the SPIKE in CRUDE OIL PRICES was witnessed due to RISING TENSIONS in Gulf Countries and then the SPECULATION.
The resultant effect is seen on ASIAN Countries, which are dependent much on CRUDE IMPORTS, resulting in increase in prices of PETROL/DIESEL/ATF/ NATURAL GAS/LPG Prices. These raising of PRICES led to the increment in other goods and decrease in Operating Income of the Corporate India.
RBI has promised to have a grip on RISING INFLATION, that too on the Cost of Growth, which may result in positive outcomes in near future.
Hence, RISING INFLATION and DECLINING GDP are co-related and are also part and parcel of an ECONOMY CYCLE. Investors should not avoid these factors but at the same time should not panic due to these factors, as every thing in ECONOMY has a Cycle and also a maturation Stage, so Investors are advised to wait for the cooling off of all these HEAT UP Prices and then GO FOR Value Buying in the Markets.
Hence, RISING INFLATION and DECLINING GDP are co-related and are also part and parcel of an ECONOMY CYCLE. Investors should not avoid these factors but at the same time should not panic due to these factors, as every thing in ECONOMY has a Cycle and also a maturation Stage, so Investors are advised to wait for the cooling off of all these HEAT UP Prices and then GO FOR Value Buying in the Markets.
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