Concerned over surging inflation, Reserve Bank of India hiked the short-term repo rate on Wednesday by 0.25 per cent to 7.50 per cent while keeping reverse repo, bank rate and cash reserve ratio unchanged.

Repo rate is the rate at which the RBI buys securities to infuse liquidity in the system. The hike was on expected lines as the central bank had given enough indications in its macroeconomic review on January 29 that the underlying inflationary pressures continue.

It kept all the key rates unchanged with the bank rate at 6 per cent, reverse repo rate at 6 per cent and CRR at 5.5 per cent.

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Inflation, which had breached the 6 per cent mark in the first week of January, had eased marginally to 5.95 per cent in the following week ended January 13. Against this background, the outlook for inflation assumes criticality in terms of policy monitoring and action.

In the third quarter review of the monetary policy, it said prices of food articles will have considerable impact on headline inflation over the rest of the year.

It said the seasonal decline in prices of food articles in the second half of the year has been less than normal.

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Prices of manufactures are firming up and were close to the headline level by the end of december.

The RBI revised upwards, the GDP growth to 8.5 to 9 per cent in 2006-07 as compared to 8 per cent projected in mid-term review and 7.5 to 8 per cent in the Annual Policy Statement and First Quarter review.

With growth clocking 9.1 per cent in the first half of 2006-07, the policy review said that growth momentum will be sustained in the third quarter with some setbacks in agriculture sector.

The Monetary and Credit Policy 2006-2007