Why RBI hiked repo rates

The Reserve Bank's move to hike repo rates by 0.25 per cent is aimed at keeping inflation under check, which stood at 4.68 per cent.

"This is a measure to keep inflation under control. Time to time steps would be taken to keep inflation within the projected range of 5-5.5 per cent," a finance ministry source said.

On the effect of a hike in reverse repo rate to 5.75 per cent and the resultant increase in repo rate to 6.75 per cent, the source said it is up to public sector banks to decide on revising their interest rates. He said the GDP growth this fiscal is expected to be over eight per cent.

The Prime Minister's Economic Advisory Council, which met on Thursday, also said there is a high possibility of achieving GDP growth between 7-8 per cent this fiscal.

Despite the recent selling pressure witnessed among foreign institutional investors, the source said India still remains the most-favoured destination for FIIs.      

The source also said concessional short-term crop loan being provided to farmers will cost the government Rs 1,700 crore (Rs 17 billion) this fiscal.

The government announced in the budget to provide short term loans to farmers at concessional seven per cent interest rates. The finance ministry expected agriculture credit to farmers to be around Rs 2,00,000 crore (Rs 2000 billion) during 2006-07.