Amid growing concerns over the persistent rise in prices, the Reserve Bank of India (RBI) is likely to raise key policy rates — repo and reverse repo — the Prime Minister’s Economic Advisory Council (PMEAC) said on Tuesday.
"RBI will take a view of the fact that inflation still persists at a high level. If inflation level persists at double-digit level for several months together, some action on the demand side is needed and some action on the part of RBI is required," C. Rangarajan, chairman, PMEAC, told reporters.
The central bank will announce its quarterly monetary policy on July 27.
Repo rate indicates the rate at which banks borrow from RBI and an increase in this rate would mean interest rates on home, consumer and corporate loan could become costlier. The central bank also has the option of sucking out liquidity by raising the cash reserve ratio (CRR) — the deposit that banks have to park with the RBI, though analysts said that, at present, it may decide to leave it untouched as money supply is tight due to borrowings by telecom companies for spectrum and advance tax by corporates.
The RBI has already increased the short term borrowing rates by 25 basis points earlier during the month. The central bank had also raised repo and reverse repo rates by 25 basis points in April.
On industrial growth, which showed a decline in May, Rangarajan said, "The (IIP) figures do indicate slight reduction in the rate of growth but on the whole I believe growth rate of industrial production will be close to what we had achieved in the last year. I believe industrial production is still strong."