New Delhi, October 29
Continuing to persist with its priority to fight inflation, the Reserve Bank of India (RBI) today hiked the key lending rate, repo rate by 25 basis points or 0.25 per cent which is likely to make home, auto and consumer loans more expensive for the consumer, in the middle of the festival season.

The RBI today raised short-term lending (repo) rate by 0.25 per cent to 7.75 per cent and lowered MSF rate by a similar margin to 8.75 per cent, basically a gradual withdrawal of special measures announced earlier to check the falling rupee.

RBI Governor Raghuram Rajan has continued on the lines of his predecessor, D Subbarao to hike rates to fight inflation. In his monetary policy review, Rajan said both wholesale and consumer price inflation are likely to remain elevated in the months ahead, warranting an appropriate policy response. Some analysts have said that the inflation centric approach may be due to the approaching General Election.

Rajan said it is important to break the spiral of rising price pressures in order to curb the erosion of financial saving and strengthen the foundations of growth.

For the second time in the current fiscal, RBI scaled down the growth forecast to 5 per cent from 5.5 per cent for 2013-14. It had originally projected a growth rate 5.7 per cent. The growth rate fell to decade's low of 5 per cent in 2012-13. Giving rationale for its policy stance, Rajan said they "are intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth.

The RBI on Tuesday asked banks to charge customers for transaction SMS alerts on the basis of usage, instead of imposing a fixed fee, to ensure equity and be reasonable. Some banks have imposed a flat fee on SMS alerts for customers which now will be calculated on the basis of actual usage.

As part of its customer service initiative, the RBI has stipulated that with a view to ensuring reasonableness and equity in the charges levied by banks for sending SMS alerts to customers, banks are advised to leverage the technology available with them and the telecom service providers to ensure that such charges are levied on all customers on actual usage basis.

As part of its development objectives, the RBI will soon come out with comprehensive guidelines on foreign banks to encourage them to convert into wholly owned subsidiaries (WOSs) and enjoy near-national treatment.

In a bid to provide consumers an alternative to saving in gold, the RBI also will soon launch a 10-year savings instrument that will offer inflation-linked returns to small investors.

The RBI policy stance was cheered by the markets as there were no surprises. The Sensex shot up to an almost three-year high today, jumping 359 points as investors bought bank stocks on the back of liquidity easing measures.

However, industry is disappointed with yet another rate hike which it feels will further hit growth prospects of an already struggling economy.