RBI raises key rates by 50 bps

Continuing its anti-inflationary stance, Reserve Bank of India (RBI) raised the repo rate by 50 basis points (bps).

Repo rate raised to 8% from 7.50%.

Reverse Repo rate raised to 7% from 6.50%.

CRR remains unchanged at 6%.

Addressing a press conference, RBI Governor D Subbarao said that moderation in demand is necessary to bring down inflaiton and that the US debt standoff will add risks to the global capital flows. He also said that the subsidy burden may overshoot the budgeted amount this year.

Despite economy showing signs of cooling down, June Wholesale price inflation (WPI) rose to an annual 9.44% from 9.06% in May, driven by higher prices for fuel and manufactured goods. Inflation for the next few months still to remain a challenge.

FY12 GDP growth forecast was kept unchanged at 8%. The RBI stated that the FY12 fiscal deficit target is a challenge and that this move has been taken to control inflation which is imperative to sustain growth.

The Bank Nifty was down by 2.16% at Rs 11,145.60 after the RBI policy announcement.