Rate-sensitive sectors such as banking, realty and auto are trading lower by more than 1% each after the Reserve Bank of India (RBI) hiked the key policy rates by 50 basis points each at its first quarter Monetary Policy review 2011-12.
“It has been decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points from 7.5% to 8% with immediate effect and the reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, automatically adjusts to 7% with immediate effect,” the RBI said.
The RBI is expecting these policy actions to reinforce the cumulative impact of past actions on demand and maintain the credibility of the commitment of monetary policy to controlling inflation, thereby keeping medium-term inflation expectations anchored. The central bank has emphasised that stronger monetary policy actions are required in the absence of complementary policy responses on both demand and supply sides.
“Going forward, the monetary policy stance will depend on the evolving inflation trajectory, which, in turn, will be determined by trends in domestic growth and global commodity prices. A change in stance will be motivated by signs of a sustainable downturn in inflation,” the central Bank added in its guidance.
