The Reserve Bank on Thursday raised its short-term lending and borrowing rates by 25 basis points in a bid to
rein in inflation.
It was the central bank's eighth rate hike since March 2010.
The short-term lending,
or repo rate, has been increased from 6.50 per cent to 6.75 per cent, while the short-term borrowing rate (reverse repo) has been raised to 5.75 per cent from 5.50 per cent.
Increase in rates by RBI is expected to make loans, including housing, auto and corporate loans, dearer.
"The rate hike is
on expected lines and the direction which the policy gives is towards more hardening," Bank of Baroda Chairman and Managing Director M D Mallya said.
Indian Overseas Bank Chairman and Managing Director M Narendra said the RBI monetary tightening action is not going to translate into interest rate revision immediately.
"I think rates would remain stable during this month. Beyond March it would depend on various factors like call money rates etc," Narendra said.
Commenting on policy action, United Bank of India Chairman and Managing Director Bhaskar Sen said, "There is a possibility (hike in interest rates) definitely. It will increase our funding cost also."
It is on expected lines and the 25 hike basis point was factored in by market, Sen added.
Conforming to above views, Union Bank of India Executive Director S C Kalia said the hike was on expected line.
Policy signal is clear but it may not result in rate hike before March-end, Kalia said.
Echoing the view, Punjab & Sind Bank Executive Director P K Anand said till March 31 banks are unlikely to tinker with their rates.
Revision in rates by banks would happen in April when the new fiscal year begins.
Yes Bank's Chief Financial Officer Rajat Monga said the deposit rates -- that react first -- offered by banks are already very high and should not see a spike in the near future.
However, there is "pent-up" pressure of the lending rates and the banks will upwardly revise them starting April with reviews of the base rate, he added.
Keeping in view the liquidity situation, the central bank has kept the cash reserve ratio (CRR), the amount which lenders are required to keep with the RBI in cash, unchanged at 6 per cent.
RBI has raised
inflation projection to 8 per cent for March-end against 7 per cent estimated earlier.
"After a slight moderation in January, headline WPI inflation reversed in February 2011 accompanied by a sharp increase in non-food manufactured products inflation," RBI said in its mid-quarterly review announced today.
The overall inflation increased marginally in February to 8.31 per cent from 8.23 per cent a month ago.
The policy initiatives, RBI said, are aimed at reining in demand-side inflationary pressures and contain the spillover of food and commodity price hike to other sectors.
It further said that the central bank would continue with its policy to contain rate of price rise.
"Based on the current and evolving growth and inflation scenario, the Reserve Bank is likely to persist with the current anti-inflationary stance," it said.
--With PTI inputs
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