New Delhi In a sudden move, the Reserve Bank Of India has hiked the repo rate by quarter of a per cent with an immediate effect.
As a result the repo rate now stands at 7.75 per cent.
It also raised its cash reserve ratio (CRR) by half a percentage point. The CRR will rise to 6.50 per cent in two tranches, the first on April 14, 2007, and the other on April 28, 2007. The CRR hike will drain Rs 15,500 crore from the banking system.
RBI has also decided to cut interest rate on bank's CRR balance deposited with it from one per cent to 0.5 per cent with effect from April 14.
''In the light of the current macroeconomic, monetary and anticipated liquidity conditions, as well as with a view to containing inflation expectations, it is critical to take demonstrable and determined action on an urgent basis,'' PTI quoted RBI statement.
According to the apex bank, the move was necessary to contain inflationary expectations in the economy.
Bankers reacted sharply, saying it will curb growth and affect profitability and indicated that interest rates on home, personal and other loans could go up.
The State Bank has reacted by stating that the rate hike might impact growth momentum. The surprising move is widely expected to increase the cost of borrowings.
Asian Development Bank, in its report early this week, had forecast that tightening of monetary policies to tackle overheating would slow down the country's economic growth to 8 per cent in 2007-08.
With agency inputs
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