Reserve Bank of India hikes the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points to 8.00%
June 11, 2008:
The year-on-year WPI inflation which was 4.36 per cent on January 12, 2008 (at the time of announcement of the Third Quarter Review for 2007-08) increased to 7.33 per cent on April 12, 2008 (at the time of announcement of the Annual Policy Statement for 2008-09) and to a high of 8.24 per cent on May 24, 2008. Further, various measures of CPI inflation, which ranged from 4.8 to 5.9 per cent in January 2008 have increased to a range of 7.8 to 8.9 per cent in April 2008.
In light of the above, and on a review of the current macroeconomic and overall monetary conditions and with a view to containing inflation expectations, it is essential to take appropriate action on an urgent basis. Accordingly, the Reserve Bank of India has decided to increase the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points to 8.00 per cent from 7.75 per cent with immediate effect. There is no change in the reverse repo rate.
It may be recalled that the Annual Policy Statement for the year 2008-09 (April 29, 2008) had referred to the unprecedented uncertainties and dilemmas that exist and added "while monetary policy has to respond proactively to immediate concerns, it cannot afford to ignore considerations over a relatively longer term perspective of, say, one to two years, with respect to overall macroeconomic prospects. At the same time, it is critical at this juncture to demonstrate on a continuing basis a determination to act decisively, effectively and swiftly to curb any signs of adverse developments in regard to inflation expectations".
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