Given the rise in inflation, it was inevitable. The RBI just announced its decision to increase short-term interest rates by 25 basis points.
The central bank lifted its reverse repo rate, used to drain liquidity from the money market, by a quarter of a percentage point to 5.25 percent, prompting stocks and the rupee to firm and benchmark bond yields to rise.
Tuesday’s widely expected rate rise takes the reverse repo to its highest in 2-1/2 years. It last raised the rate — by a quarter of a percentage point — in April. The central bank surprised analysts by raising the repo rate, used to add liquidity to the money market, by a quarter of a percentage point to 6.25 percent, while leaving the bank rate for pricing long-term loans steady at 6.0 percent. But the central bank suggested further inflationary pressures were in the pipeline, warning markets that higher international crude prices had only been partially passed through into domestic prices and second-round effects were not yet “noticeably significant”.