RBI hikes lending rates | It's a move to curb inflation: Govt

UP, UP AND AWAY: RBI raised its key lending rate by 50 basis points to a seven-year high of 9 pc.

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Mumbai: The Reserve Bank of India (RBI) raised its key lending rate by 50 basis points to a seven-year high of 9.0 per cent on Tuesday to curb inflation, now running close to 12 per cent, and dampen inflationary expectations.

The RBI also raised the cash reserve ratio, the proportion of funds that banks must keep on deposit with it, by 25 basis points to 9.0 per cent to limit the amount of inflation-stoking surplus cash in the banking system.

It will fully take effect by Aug 30. Most analysts polled by Reuters last week had expected the central bank to follow up its aggressive policy tightening in June with another rate rise after an increase in state-set fuel prices pushed inflation to its highest since 1995.

The majority saw no change in the reserve ratio. The central bank left its reverse repo and bank rates unchanged.

Highlights

* Short-term lending rate Repo raised by 0.5 % to 9 %

* Cash Reserve Rato raised by 0.25 % to 9 % from Aug 30

* Reverse repo and bank rate unchanged at 6 %

* RBI lowers GDP growth rate projection to 8% from 8-8.5%

* RBI to attempt to cool inflation from 11-12% to 7% by March, 2009

* Earlier objective was to bring down inflation to close to 5 % by March, 2009

* RBI to continue to strive to bring down inflation to 3 % in medium-term

* Liquidity management to be top priority

* Price stability, orderly conditions in financial market to be given high priority

* Early signs of some moderation in money supply.