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RBI (Reserve Bank Of India) hikes repo rates by 0.25%By Dr arvind, Section News
In a clever balancing act, Reserve Bank on Tuesday ensured that key interest rates are unchanged so as to maintain stable commercial lending rates, including that of home loans, to keep the growth momentum alive.
But at the same time, RBI Governor YV Reddy took a small step to contain inflation, now hovering at over 5 per cent, by hiking repo rate (overnight rate) at which RBI buys securities from banks to 7.25 per cent from the earlier 7 per cent. In its mid-term review of the Annual Policy Statement for FY'07, the apex bank kept both the bank rate and cash reserve ratio unchanged at 6 per cent and 5 per cent, respectively. Normally, the reverse repo and repo rates maintain a 100 basis points spread between each other which has now been increased to 125 basis points. The RBI has retained the flexibility to conduct overnight repo or longer term repo including the right to accept or reject tenders under the LAF, wholly or partially. Optimistic about the economic growth, RBI upped the GDP projection for 2006-07 to 8 per cent from the earlier 7.5 to 8 per cent. Click on "Full Story" for more...
This optimism stems from the fact that the overall industrial outlook has improved in relation to the assessment made in July.
Besides, the services sector is also expected to sustain its growth momentum, the apex bank stated. The real GDP originating in agriculture is poised to maintain a trend growth of 3 per cent, RBI said. Despite inflationary pressures, the apex bank has still maintained the inflationary range between 5 and 5.5 per cent and said that containing year on year inflation within this range will "assume policy priority in terms of watchful monitoring and appropriate policy responses." The Reserve Bank, in its policy statement, said that its stance will ensure a monetary and interest rate environment that supports exports and investment demand in the economy. This is to "enable continuation of the growth momentum while reinforcing price stability with a view to anchoring inflation expectations," the RBI said. The emphasis would be on macro-economic and in particular financial stability while being ready to promptly and appropriately address situations arising out of the evolving global and domestic situation, it said. From: THE, OCT-31,06
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