RBI hikes repo, reverse repo rates by 0.25%

     The Reserve Bank of India (RBI) has hiked the repo and reverse repo rate by 25 basis points (100 bps=1%). The new repo and reverse repo rate is 5% and 3.5%, respectively. The hike comes into effect immediately.

The rate at which the central bank lends money to commercial banks is called the repo rate while the reverse repo is the rate at which RBI borrows money from banks.

The central bank promises to take further action as and when warranted. "We continue to monitor macro conditions and the price situation. The steps undertaken will help anchor inflationary expectations and contain inflation," RBI said in a statement.

Food prices are showing signs of moderation, but continue to be elevated, it said. "Consumer price inflation has accentuated further." Food price index rose 16.3% in the year to March 6, lower than the annual rise of 17.81% in the previous week, continuing a downward trend for the second straight week.

The monthly wholesale price inflation stood at 9.89% in February. RBI stated that there was a risk that WPI inflation may cross the double-digit mark in March.

The price rise in fuel items is also of 'particular concern' to the apex bank.

RBI sees the economic recovery consolidating. "We didn't hike rates in the January policy to let the recovery take full hold. The recent industrial productivity data suggests a revival in private demand, which may add to inflationary pressure. It shows that the uptrend is being maintained," it explained.

S&P down  7 pts