India's Reserve Bank hikes key rates to tame inflation

In a bid to tame prices that has seen annual food inflation soar to double digits, India's central bank Tuesday hiked its short-term lending and borrowing rates by 25 basis points that could make commercial, housing and auto loans dearer. Reserve Bank of India (RBI) Governor Duvvuri Subbarao hiked the repurchase or repo rate to 6.5 percent from 6.25 percent and reverse repo rate to 5.5 percent from 5.25 percent. Other rates like cash reserve ratio and statutory liquidity ratio remained unaltered. The key policy rates were tinkered for the seventh time since January last year as part of the third-quarterly review of the central bank's monetary policy by the governor at the headquarters on Mint Road in downtowm Mumbai. The repo rate, often referred to as the short term lending rate, is the interest charged by the central bank on borrowings by commercial banks. A hike in the rates makes cost of borrowing costlier for the commercial banks.