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y Tuesday, RBI raised its key policy rates for the fourth timethis year, taking more steps to control soaring prices evenas the economy shows a strong rebound.

y The RBI did not change CRRF or Bank Rate and kept theseat 6.0 per cent. Repo Rate has been increased under theLiquidity Adjustment Facility (LAF) by 25 basis points from5.5 per cent to 5.75 per cent with immediate effect.

y Reverse Repo Rate has been raised under the LAF by 50basis points from 4.0 per cent to 4.50 per cent withimmediate effect.

y

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y The RBI hopes that its move will help:

y 1.Moderate inflation by reining in demand pressures andinflationary expectations. This means that prices of fooditems and other essential commodities are expected to dropover the next 6-9 months.

y 2.Maintain financial conditions conducive to sustaininggrowth.

y

3. G

enerate liquidity conditions consistent with moreeffective transmission of policy actions.

y 4. Reduce the volatility of short-term rates in a narrowercorridor.

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y After a rate hike, commercial banks normally increasetheir lending rates: meaning, they hike interest rates

for home loans, car loans, personal loans, etc.y Experts meanwhile feel that banks are unlikely to hike

lending rates in the short term even though the RBIhiked interest rates more than expected. But one more

round of increase in key rates by the RBI will lead to ahike in home loan, personal loan, car loan, etc rates

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e s s ance o ncrease ra es

was influenced by three major

factorsy First, domestic economic recovery is firmly in place and is

strengthening. The 7.4 per cent growth in 2009-10 despiteweak global growth and the insignificant contribution of

the agriculture sector is a testimony of the resilience of theIndian economy.y Second-inflationary pressures have exacerbated and

become generalised, with demand-side pressures clearlyevident. Capacity constraints are visible in several sectorsand pricing power is returning to producers.

y Inflationary expectations also remain at an elevated level.Given the spread and persistence of inf lation, demand-sideinflationary pressures need to be contained

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y Third, despite the increase in the policy rates by 75 basispoints cumulatively, real policy rates are not consistentwith the strong growth that the economy is now

witnessing. As articulated in previous policystatements/reviews, lower policy rates can complicate theinflation outlook and impair inflationary expectations,particularly given the increased generalisation of inflation.

y It is, therefore, imperative that we continue in the directionof normalising our policy instruments to a level consistentwith the evolving growth and inflation scenario, whiletaking care not to disrupt the recovery.

y

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Eff ct a ksy Raise deposit rates and attract term deposit

y Rbi is worried bec a real negative intrest attract

depositors to park money inMF and stock.y This can impact on bank and loan growth

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Benefits t t al f ndy Mutual fund are benefited because they are not to

comply with these type of rule.

yIt has not to maintain CRR, REPO RATE , reverse reporate

y Company looks towards theMF for capital need andeating the bank business

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y Increase the capital inflow

y Tight liquidity

y No risk

y Investor attract

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