Rajan hikes key rate by 0.25%; consumer loans to get costlier

Inflation worries today forced the Reserve Bank to continue its firm stance and hike the short-term lending (repo) rate by 0.25 per cent, a step that will make corporate and consumer loans more expensive.
There was no surprise in the first full policy unveiled by new RBI Governor Raghuram Rajan, who increased the repo rate, as was widely expected, by 0.25 per cent to 7.75 per cent and brought down the cost of short-term funds for banks by slashing the marginal standing facility (MSF) rate by a similar quantum to 8.75 per cent.
The policy stance and measures, Rajan said, "are intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth.

"These will help strengthen the environment for growth by fostering macroeconomic and financial stability. The Reserve Bank will closely monitor inflation risk while being mindful of the evolving growth dynamics," he said.
The central bank reduced the growth forecast for the current fiscal to 5 per cent from 5.5 per cent projected earlier. Economic growth fell to a decade-low of 5 per cent in the previous financial year.
The RBI left other rates unchanged, such as the cash reserve ratio at 4 per cent, and mandatory holdings in government securities and other liquid assets as a solvency measure (SLR) at 23 per cent.

However, the Governor doubled the borrowing limit of banks against their cash positions or NDTL to 0.5 per cent for both 7-day and 14-day repos, with immediate to increase liquidity in the system.