In order to tame inflation the Reserve Bank announces the following policy measures in the Mid-Quarter Monetary Policy Review on 16th September 2011:
- Increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8.00 per cent to 8.25 per cent with immediate effect.
- The reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, stand automatically adjusted to 7.25 per cent with immediate effect.
- The Marginal Standing Facility (MSF) rate, determined with a spread of 100 basis points above the repo rate, stands recalibrated at 9.25 per cent with immediate effect.
- The Bank Rate has been retained at 6.0 per cent.
- The cash reserve ratio (CRR) of scheduled banks has been retained at 6.0 per cent of their net demand and time liabilities (NDTL).
The policy action in this Review is expected to reinforce the impact of past policy actions to contain inflation and anchor inflationary expectations.
Repo rate is the rate at which banks borrow money from RBI. When the repo rate increases, borrowing from RBI becomes more expensive. Hence, all loans – personal and corporate – are likely to become costlier and home loan EMIs will increase once banks hike their base rate – the rate to which most retail loans are pegged.
This is the 12th time, since March 2010, that the RBI has raised interest rates, making it the longest rate hike cycle in nearly a decade. The RBI has been increasing interest rates in a bid to contain rising inflation and at 9.78 per cent, inflation for the month of August hit a 13-month high.
Source : RBI Website : Mid-Quarter Monetary Policy Review: September 2011
Source : NDTV Profit