India raises repo rate by 0.5%

The Reserve Bank of India (RBI) today raised repo rates- the short term lending rates - by 0.50 per cent to 8 per cent. The reverse repo rate - the short term borrowing rate - has now moved up from 6.5 per cent to 7 per cent. The cash reserve ratio (CRR) - the amount of funds that the banks have to keep with RBI- remains unchanged at 6 per cent. The bank said that the rate of inflation was as high as 9.44% at the end of June driven by basic, non-food, materials as well as oil and industrial products. Welcoming the Reserve Bank''s decision to hike key rates by a hefty 50 basis points, Finance Minister Pranab Mukherjee said it will help bring down inflation to a comfortable level of 6-7 per cent by year-end. While Reserve Bank of India Governor Duvvuri Subbarao said that inflation continues to be a dominant Macroeconomic concern. This is the eleventh time, since March 2010, that the RBI has raised interest rates.