RBI raises short-term rates to contain inflation

The Reserve Bank of India on Friday raised the short-term lending and borrowing rates by 25 basis points with immediate effect to contain inflation.

The move comes weeks ahead of the scheduled policy review by RBI on July 27 and a day after the government announced that food inflation dipped by about a quarter to about 12 per cent.

Overall wholesale prices-based inflation too is in double digits.

The central bank raised both, repo and reverse repo rates (the rates at which the RBI lends and borrows short-term funds from commercial banks), by 25 basis points to 5.50 per cent and 4 per cent, respectively.

The move would raise cost of funds for banks and temper demand for loans, and in turn, consumer spending.

"The RBI's action is consistent with its gradual normalisation of policy rates towards a level consistent with the economic growth, in a non-disruptive manner," said Chanda Kochhar, managing director and CEO of ICICI.