RBI hikes rates | Banks may follow suit

RBI HIKE: With fuel prices too refusing to cool down, most analysts were prepared for the hike.

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New Delhi: As inflation continues in the double digit zone, and it's becoming clear that the the measures taken by the Government have not borne fruit, the Government has decided to pass the onus on to the Reserve Bank of India (RBI) to combat rising prices.

However, RBI Governor Y V Reddy continued to pose a brave front.

"We are confident that with a well-managed, smooth adjustment of this episode, inflation will be brought in alignment with our aim as expressed in the monetary policy," he said.

However, the smooth adjustment, as Reddy called it, has come as double shocker for many.

The apex bank has hiked two key interest rates. The repo rate - the rate at which RBI lends to banks - is up 50 basis points to 8.5 per cent, and the cash reserve ratio (CRR) is also up 50 basis points to 8.75 per cent, the highest since 2002.

The CRR hike will take place in two stages. First, a 25 basis points hike will take effect from July 5 and the second hike will come into effect from July 19.

With fuel prices too refusing to cool down, some analysts were prepared for the hike.

Infosys Board Member, T V Mohandas Pai says, "The hike was expected. On the food front, we are very comfortable, but on the oil front we are not comfortable at all. And like the RBI Governor says, the financial sector is in good shape in India but we don't have a financial bubble in the financial markets."