On Tuesday June/24/2008 Reserve Bank of India (RBI) increased the repo rate to 8.75 per cent — a six-year high — from 8.25 per cent, and CRR to 8.75 per cent from 8.25 per cent.
Reserve Bank of India’s move to hike repo rate (the rate at which RBI lends to banks) and cash reserve ratio (CRR or the portion of deposits the banks have to keep with the RBI), this two-pronged move will make it difficult for the economy to maintain its expected growth momentum of 8 to 8.5%.
Banks, which have been holding their lending rates so far, will be forced to hike them in the next few days by at least 100 to 150 basis points (100 basis points is one percentage point).
