New Delhi, March 17
The Reserve Bank of India (RBI) today raised key policy rates by 25 basis points (100 basis points equals 1 per cent) in its continuing fight against inflation which is likely to make home, auto and corporate loans more expensive and slow down growth in the economy. However, it is good news for savers who can earn higher interest rates on their bank fixed deposits.

In its credit policy review today, the RBI increased the rates for the eighth time since March 2010 to cool down demand but also signalled that there are risks emerging to the growth trajectory.

It raised short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points each to 6.75 per cent and 5.75 per cent respectively.

The RBI move is likely to make loans costlier, hit consumer wallets already stretched by food inflation and bring down demand for interest rate sensitive products like real estate, cars, trucks and consumer durables. Benign interest rates fuel demand for consumer products while as interest rates climb and the cost of owning assets increase, demand comes down.

“The underlying inflationary pressures have accentuated, even as risks to growth are emerging. Rising global commodity prices, particularly oil, are a major contributor to both developments,” the RBI said in its mid-quarter policy review statement.

The RBI said the policy is expected to continue to rein in demand-side inflationary pressures while minimising risks to growth.