In order to tame inflation the Reserve Bank of India announces the following policy measures in the Second Quarter Review of Monetary Policy 2011-12 on 25th October 2011:
- Increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8.25 per cent to 8.50 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 7.50 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 9.50 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 13th time, since March 2010, that the RBI has raised interest rates, making it the longest rate hike cycle in nearly a decade.
RBI also announced freeing up of Savings Bank Interest rate, earlier in May 2010 it had raised SB Interest rate to 4% from 3.5%.
RBI’s policy rate hikes at a glance:
| Date | Reverse Repo | Repo |
| October 25, 2011 | 25 (7.50) | 25 (8.50) |
| September 16, 2011 | 25 (7.25) | 25 (8.25) |
| July 26, 2011 | 50 (7.00) | 50 (8.00) |
| June 16, 2011 | 25 (6.50) | 25 (7.50) |
| May 03, 2011 | 50 (6.25) | 50 (7.25) |
| March 17, 2011 | 25 (5.75)* | 25 (6.75) |
| January 25, 2011 | 25 (5.50) | 25 (6.50) |
| November 02, 2010 | 25 (5.25) | 25 (6.25) |
| September 02, 2010 | 50 (4.75) | 25 (6.00) |
| August 27, 2010 | 50 (4.25) | 25 (5.75) |
| August 02, 2010 | 25 (4.00) | 25 (5.50) |
| April 20, 2010 | 25 (3.75) | 25 (5.25) |
| March 19, 2010 | 25 (3.50) | 25 (5.00) |
*The bracketed figures show Reverse repo and repo in percentage term.
Source : RBI Website : Second Quarter Review of Monetary Policy 2011-12
Source : Money Control
Also See : Current Policy Rates and Reserve Ratios (SLR, CRR, Bank Rate, Repo, Reverse Repo)
