October 25th, 2011
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RBI hikes interest rates,SB account interest rate deregulated

Subba RaoMumbai: The Reserve Bank of India hiked its interest rates by 0.25 percentage point today. Repo rate, the rate at which the RBI lends money (or infuses liquidity) to banks will now stand at 8.50 per cent. Consequent to the change in the repo rate, the reverse repo rate (the rate at which the RBI borrows from banks or absorbs liquidity) will now be 7.50 per cent. However, the bank kept cash reserve ratio (CRR) unchanged at 6%. These increases in interest rates would make loans dearer.

The RBI today announced it had deregulated savings bank deposit interest rate with immediate effect. The Savings bank account interest rate is among the last of the administered interest rates in the system. The RBI said banks are free to determine their savings bank deposit interest rate.

However the RBI has placed two conditions. Each bank will have to offer a uniform interest rate on savings bank deposits up to Rs 1 lakh, irrespective of the amount in the account within this limit. The second condition is that for savings bank deposits over Rs 1 lakh, a bank may provide differential rates of interest, if it so chooses. However, there should not be any discrimination from customer to customer on interest rates for similar amount of deposit.

This is the thirteenth hike in policy rates over the past 18 months. The central bank has been battling to keep India’s growth story intact amid weakening global environment.

Inflation, which has been the major reason behind the RBI aggressive stance, has remained above 9 percent for 10 straight months. Food inflation climbed to 10.60% for the week ending October 8 from the same period a year earlier, according to government data.

The Wholesale Price Index (WPI), India’s most closely watched inflation gauge, stayed well above the RBI’s comfort zone at more than 9% in September.



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