RBI increased interest rates by 50 basis points

Today, RBI increased interest rates by 50 basis points, a 9th consecutive move by Indian central banker to curb the inflation.

Before jumping to the internals of the interest rates, lets look at the important changes in the operating procedure...

* The weighted average overnight call money rate will be the operating target of monetary policy of the Reserve Bank.

* There will henceforth be only one independently varying policy rate, and that will be the repo rate.

* The reverse repo rate will continue to be operative, but it will be pegged at a fixed 100 basis points below the repo rate. Hence, the reverse repo rate will no longer be an independent variable.

* There will be a new Marginal Standing Facility (MSF). Banks can borrow overnight from the MSF up to one per cent of their respective net demand and time liabilities or NDTL. The rate of interest on amounts accessed from this facility will be 100 basis points above the repo rate.

* The revised corridor will have a fixed width of 200 basis points. The repo rate will be in the middle. The reverse repo rate will be 100 basis points below it, and the MSF rate 100 basis points above it.

So according to above changes, RBI made increased the interest rates as follows...

* Repo rate increased by 50 basis points from 6.75% to 7.25%

* Due to pegging, reverse repo also increased to 6.25% from 5.75%

* MSF is fixed to 8.25% again due to pegging

* CRR is unchanged at 6%

* Savings bank deposit interest rate increased from 3.5% to 4.0%