RBI considered 50 bps hike but settled for 25 bps: Guv

Reserve Bank of India (RBI) Governor D Subbarao today said the central bank considered 50 basis point hike in policy rates but settled for 25 basis point increase to address inflationary concerns without hurting growth.

"Indeed we did (consider 50 basis point hike)...Its not as if it was straight-forward decision that fell out of some analytical model," Subbarao told reporter after unveiling third quarter review of monetary policy.

"It was a judgment call and ultimately we decided that we do 25 basis points," he said.

Subbarao added, "Dilemma before Reserve Bank mainly was how to balance between concern of growth and concerns of inflation...Our challenge is to restrain demand pressures in the short term, and support supply response. So, with one monetary policy instrument how do we restrain demand and support supply, that has been the challenge."

The RBI today hiked its key short-term lending and borrowing rates by 25 basis points (0.25 per cent) each with immediate effect to rein in high inflation. The lending (repo) rate now stands at 6.5 per cent and the borrowing (reverse repo) rate at 5.5 per cent.

Subbarao also noted that RBI would continue with tight monetary policy stance in the coming months and did not rule out any inter-policy action.

"Last thing is that the guidance we have given. We have said that we need to persists with anti-inflationary monetary policy stance. We have said that more clearly than before," he said.

Global commodity prices have risen sharply, heightening upside risks to domestic inflation, Subbarao said.