New Delhi: The Reserve Bank of India (RBI) Governor D Subbarao Tuesday said he expects banks to respond to the 25 basis point key policy rate hike announced earlier in the day, and transmit the rate hike to their customers. Following the governor's announcement, private sector lender Yes Bank became the the first bank to transmit the rate hike, increasing its base rate -- the yardstick for pricing all loans -- by 25 basis points to 10.5%, while other banks may follow suit. Earlier Tuesday, the RBI raised its short term lending rate (repo) by another 25 basis points -- the 13th sequential hike since March 2010 -- to tame stubbornly high inflation despite visible signs of moderation in economic growth. However, in contrast to its earlier monetary policy reviews when it kept inflation as its sole target, the central bank said it will consider the tight monetary policy's impact on the country's economic growth as well going forward. The RBI also said that the likelihood of a rate hike in the mid-quarter review in December is relatively low provided inflation starts easing from December to the projected 7% by March 31, 2012. Headline inflation was at 9.72% in September, moderating marginally from 9.78% in August, but way above the RBI's comfort level of 5%-6%.
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