Indian repo rate at which banks borrow money from RBI and reverse repo rate at which banks park money at RBI will be increased to 8.5 percent and 7.5 percent, respectively, following the 13th hike of interest rates since March 2010.
RBI also revised downward of Indian economic growth in current fiscal year ending March 31, 2012 to 7.6 percent from earlier projection of 8 percent.
RBI maintained inflation projection unchanged at 7 percent by March 2012, keeping in view the domestic demand-supply balance, the global trends in commodity prices and the likely demand scenario.
Elevated inflationary pressures are expected to ease from December 2011, though uncertainties about sudden adverse developments remain, added the report.
"While the impact of past monetary actions is still unfolding, it is necessary to persist with the anti-inflationary stance," said RBI in the report.
The monetary policy is intended to maintain an interest rate environment to contain inflation, stimulate investment activity to support raising the trend growth as well as manage liquidity to ensure that it remains in moderate deficit, consistent with effective monetary transmission.
RBI said that the monetary policy tightening effected so far has helped in containing inflation and anchoring inflation expectations, even as both remain elevated.
Still, RBI has softened its hawkish tone on inflation control saying the policy stance and guidance are shaped by the need to balance concerns about persistent inflation and moderating growth.
"Growth risks are undoubtedly significant in the current scenario, and these need to be given due consideration," said RBI while stressing the need to stick its commitment to low and stable inflation.
The report also highlighted the risks of global economic slowdown, high commodity prices, bigger governmental borrowing and structural imbalances in protein-rich items.
RBI said that increased governmental borrowing from the market can potentially crowd out more productive private investment and large fiscal deficit has been an important source of pressure.
"Clearly, the impact of tightening monetary policy has been diluted by the expansionary fiscal position," said the report.
The expected moderation of inflation since this December and further declined in early 2012 provide some room for monetary policy to address growth risks in the short term, it added.
The report also said, "with this in mind, notwithstanding current rates of inflation persisting till November, the likelihood of a rate action in the December mid-quarter review is relatively low. Beyond that, "if the inflation trajectory conforms to projections, further rate hikes may not be warranted."
This clearly indicates RBI's intention to avoid further increase of interest rates and probably means the peaking of current monetary tightening since early 2010.
By now, RBI has lifted repo rate and reverse repo rate by 13 times from 4.75 percent and 3.25 percent, respectively.
Source:news.xinhuanet