With Inflation raising UP and Down and Oil prices going up , the Reserve Bank of India informed today that they have hiked key policy rates for the eighth time since last March by 25 basis points in its mid-quarterly review on Thursday , The repo and reverse repo rates were hiked by 25 bps to 6.75 per cent and 5.75 per cent, respectively. CRR was left unchanged at 6%.
What is Repo Rate – Repo rate is the rate at which the RBI lends to banks against securities.
What is Reverse Repo Rate – The reverse repo is the rate it pays to banks for deposits.
The Reserve Bank of India informed the market today that they have raised both Repo Rate and RRR, they have raised the key interest rates by more than expected and this is one of the main measure to control high inflation .
Repo Rate which is bank’s short term lending rate has been raised by 25 basis points to 5.75 percent and also it raised the reverse repo rate which is the Central bank that pays on bank deposits – by an unexpected 50 basis points, to 4.5 percent.Over here they expected only 25 basis points.They have left the cash reserve ratio unchanged at 6.0 percent, as expected.
Reserve Bank of India came out with some Monetary Policy Measures on July 2nd almost 1 month before the normal timing which means they might take an action again this month end also , On the basis of the current macroeconomic situation, it has been decided to take the following monetary policy measures as a part of the calibrated exit from the expansionary monetary policy , it has decided to go with the following 2 changes .
Monetary Policy Changes
• to increase the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 5.25 per cent to 5.50 per cent with immediate effect.
• to increase the reverse repo rate under the LAF by 25 basis points from 3.75 per cent to 4.0 per cent with immediate effect.
RBI has hiked the CRR by 50 bps to to 7.5% from 5%. However, the other key rates including the repo and reverse repo rates have remained unchanged.The RBI’s has raised the cash reserve ratio given the persistent rise in capital flows, but has otherwise left other policy rates unchanged. The central bank’s main message is that the economy is in fine shape – agriculture is above trend, industry and services may slacken just a bit. So the GDP target remains at 8.5% and inflation at 5%
Source : RBI
Raising Rupee value is really concern for exporters and IT company and also for the government, In order to slow down everything Reserve bank fo india has announced some restrictions on the External commercial Borrowings also called as ECB’s .To put it in plain words you can raise money from outside for your company and that is now restricted to 20 million dollars anything more than that should be only spent outside the company which means they have ti get RBI approval for the allowed 20 million dollars and nothing more than that .
To sum it up what it will do is this will reduce the flow of dollars into the country.This move comes after India has seen unprecedented dollar inflows through ECBs. In the period from April-July, India has received ECBs to the tune of USD 9 billion.analyst are saying that it will reduce dollar incoming to the tune of 10 to 15 billion dollars in a year.
How this will help Exporters and IT company
This will raise the reduce the rupee rate against dollar which means good news for It company and Exporters.As you can see this has reflected in todays market itself.
Reserve Bank of India (RBI) left its key lending rate unchanged at 7.75 percent on Tuesday, as expected, but raised the proportion of cash banks have to keep with it on deposit in order to mop up inflation-fuelling funds.
The RBI said the cash reserve ratio (CRR) would rise to 7.0 percent from 6.50 percent with effect from Aug. 4, taking it to its highest level since November 2001.This would again see a raise in deposit rates and interest hike we will wait and watch.