For the 12th time since March 2010 RBI hiked Repo Rate by 25 basis points to control Inflation

In a move to contain persisting inflationary pressure, the Reserve Bank of India (RBI) hiked the short-term policy rate (repo rate) by 25 basis points from 8 per cent to 8.25 per cent on 16 September 2011. The reverse repo rate as a result got automatically adjusted to 7.25 per cent and the marginal standing facility (MSF) rate to 9.25 per cent.

Repo rate is the rate at which banks borrow from the central bank and reverse repo is the rate at which banks park their funds with the RBI. The central bank raised rates for the 12th time since March 2010.

Headline year-on-year wholesale price index (WPI) inflation rose from 9.2 per cent in July to 9.8 per cent in August 2011. Inflation in respect of primary articles and fuel groups moved up in August. Year-on-year non-food manufactured products inflation rose from 7.5 per cent in July to 7.7 per cent in August 2011 suggesting a continupus demand pressures.

Oil marketing companies raised the price of petrol by Rs.3.14 a litre with effect from 16 September 2011. The rise in petrol prices is to have a direct impact of 7 basis points to WPI inflation, in addition to indirect impact with a lag.

GDP growth decelerated to 7.7 per cent in the first quarter of 2011-12 from 7.8 per cent in the previous quarter (January to March) and 8.8 per cent in the first quarter of 2010-11. The index of industrial production (IIP) slowed from 8.8 per cent year-on-year in June 2011 to 3.3 per cent in July 2011. Excluding capital goods, the growth of IIP was higher at 6.7 per cent in July 2011 compared with 4.4 per cent in June 2011. Cumulatively, the IIP increased by 5.8 per cent during April-July 2011, compared with an increase of 9.7 per cent in the corresponding period of 2010.