RBI Hikes CRR And The REPO RATE.

The Reserve Bank of India (RBI) today announced a 25 basis points hike in the cash reserve ratio (CRR) and a 50 basis points hike in the repo rate, both rates will be up to 9%.

The rate hikes were announced in the First Quarter Review of Annual Statement on Monetary Policy for FY09 presented by RBI Governor Y Venugopal Reddy.

Highlights:

• Bank Rate kept unchanged
• Reverse Repo Rate under LAF kept unchanged
• Repo Rate increased by 50 basis points from 8.5% to 9.0%
• Cash Reserve Ratio to be increased by 25 basis points to 9.0% with effect from the fortnight beginning August 30, 2008
• GDP growth projection for 2008-09 revised from the range of 8.0-8.5% to around 8.0%, barring domestic or external shocks
• While the policy actions would aim to bring down the current intolerable level of inflation to a tolerable level of below 5.0% as soon as possible and around 3.0% over the medium-term, at this juncture a realistic policy endeavour would be to bring down inflation from the current level of about 11.0-12.0% to a level close to 7.0% by March 31, 2009
• While there are early signs of some moderation in money supply and deposit growth, they continue to expand above the indicative projections warranting continuous vigilance and appropriate and timely policy responses
• In view of the evolving environment of heightened uncertainty in global markets and the dangers of potential spillovers to domestic markets, liquidity management will continue to receive priority in the hierarchy of policy objectives over the period ahead
• Barring the emergence of any adverse and unexpected developments in various sectors of the economy, assuming that capital flows are effectively managed, and keeping in view the current assessment of the economy including the outlook for growth and inflation, the overall stance of monetary policy in 2008-09 will broadly continue to be:
  
  *To ensure a monetary and interest rate environment that accords high priority to price stability, well-anchored inflation expectations and orderly conditions in financial markets while being conducive to continuation of the growth momentum
  
  *To respond swiftly on a continuing basis to the evolving constellation of adverse international developments and to the domestic situation impinging on inflation expectations, financial stability and growth momentum, with both conventional and unconventional measures, as appropriate
  
  *To emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.