The Reserve Bank of India (RBI) has raised key rates by a higher-than-expected 50 basis points, stressing that tackling inflation is its main concern even if it comes at the expense of overall growth in the short-term.
The central bank raised the repo rate, its lending rate, by 50 bps to 7.25%, and the reverse repo, its borrowing rate, also by 50 bps to 6.25%. The market had expected a 25 bps hike by RBI. Rate sensitives revolt policy moves; Sensex down 400 pts
According to Vibhav Kapoor of IL&FS the RBI's strong rate signal is a positive move. "The RBI definitely needed to show that it was in control of the situation and that it would fight inflation come whatever may be because ultimately, in the medium-term, high inflation means low growth rates and stagnation of the economy," he said.
Commenting on the initial drop in market levels, Kapoor said, "This will get sort of get priced in and after that you might see a reasonable sustainable bottom. Also over the next few weeks or months, lot is going to depend on how international commodity prices and oil prices behave."
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