Rajan unmoved by US Fed effect, prepares shield for tough days ahead - Indian Express

ENS Economic Bureau : Mumbai, Sat Sep 21 2013, 03:12 hrs Reserve Bank of India Governor Raghuram Rajan at the RBI headquarters in Mumbai on Friday. Interest rates are set to rise across the banking system after the Reserve Bank of India on Friday unexpectedly hiked the benchmark repo rate to tackle "mounting" inflationary pressures and "preserve the internal value" of the rupee. EMIs (equated monthly installments) on home, auto and personal loans are likely to go up with RBI Governor Raghuram Rajan opting for a hawkish stance in his first monetary policy review and raising the repo rate - the rate at which the RBI lends funds to banks — by 25 basis points to 7.50 per cent, the first hike in the benchmark rate in the last two years, to ward off rising inflation. The markets reacted negatively to Rajan's move with the BSE Sensex, which soared 684 points on Thursday, plunging by 382.93 points to 20,263.71. The rupee too declined by 0.74 per cent to 62.23 against the dollar. However, Rajan rolled back some emergency measures put in place to support the ailing rupee after the US Fed indicated its plan to delay withdrawal of monetary stimulus plan earlier this week. The RBI reduced the marginal standing facility (MSF) rate by 75 bps to 9.50 per cent. It also reduced the minimum daily cash reserve balance that banks have to maintain to 95 per cent of the requirement. "We believe that easing the exceptional liquidity measures was warranted given that the external environment has improved and given that the government and the RBI have used the time... to narrow the current account deficit and to ease its financing," Rajan said. Commenting on the RBI policy, Deputy Chairman of Planning Commission Montek Singh Ahluwalia said, "I think it is a quite balanced statement actually. He has done something which will ease liquidity and at the same time try to send the signal that the RBI is concerned about bringing inflation down. You need to give both those signals." ... contd. ALSO READ India to build world's largest solar power plant in Rajasthan US Fed shows red rag for market's bull run US Fed springs a surprise, decides to stick to bond-buying stimulus Govt hikes import duty on gold jewellery to 15% Please read our terms of use before posting comments TERMS OF USE: The views, opinions and comments posted are your, and are not endorsed by this website. You shall be solely responsible for the comment posted here. The website reserves the right to delete, reject, or otherwise remove any views, opinions and comments posted or part thereof. You shall ensure that the comment is not inflammatory, abusive, derogatory, defamatory &/or obscene, or contain pornographic matter and/or does not constitute hate mail, or violate privacy of any person (s) or breach confidentiality or otherwise is illegal, immoral or contrary to public policy. Nor should it contain anything infringing copyright &/or intellectual property rights of any person(s). via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHXpSkpn_PoIZ-TKEa0zC-IQCXueg&url=http://www.indianexpress.com/news/rajan-unmoved-by-us-fed-effect-prepares-shield-for-tough-days-ahead/1172155/

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