The Reserve Bank Of India increased Repo rate and CRR.

With the rise of inflation rate to an all time high of 11.05 % in India, both the Central Government and the RBI have been blamed for not taking timely action to prevent the rise of inflation rate. In the wake of criticism, RBI is now making frantic attempts to curb inflation and have it under control.

In an effort to contain surging inflation and inflationary expectations, the Reserve Bank of India on Tuesday raised the repo rate (A key short-term indicative rate) from 8 % to 8.50 % with immediate effect.

The RBI has also increased the Cash Reserve Ratio (CRR) by 50 basic points to 8.75 % in two stages, 8.50 % effective from July 5 and 8.75 % from July 19 onwards.

The  RBI said, ‘ In view of the  criticality of anchoring inflation expectations, a continuous heightened vigil over ensuing monetary and microeconomic developments is warranted to enable swift responses with appropriate measures as necessary consistent with the monetary policy stance.’

According to RBI, the escalation last week in the inflation rate was due to the pass through of international crude prices to domestic prices effected on June 5, 2008 and it was similar to the developments occurred in other countries of the world.

The stringent measures taken by the RBI would suck up an estimated Rs 20,000 crore, possibly making housing , car and personal loans dearer.

The RBI action followed the RBI Governor’s discussions with the Prime Minister and the Finance Minister.