Commercial, home, personal and car loans are sure to cost more with the Reserve Bank, under pressure to fight high inflation, announcing stringent steps including raising mandatory cash reserves of banks to suck up over Rs 8,000 crore.
Aimed at bringing down inflation from the present around 12 per cent to 7 per cent by March 2009, the central bank increased the Cash Reserve Ratio for the fourth time and raised short term lending rate to banks third time this fiscal.
In the quarterly monetary policy review, RBI increased CRR by 0.25 per cent to 9 per cent and short term lending rate to banks or repo rate by 0.50 per cent to 9 per cent.
Lowering the growth projections for the economy to 8 per cent from the earlier 8-8.5 per cent, it targeted to bring down the rate of price rise to 7 per cent by March, making a clear case for prioritising inflation management over the GDP. Earlier, RBI had set a goal of limiting inflation to 5-5.5 per cent.
The new policy, which is sure to disappoint the industry that urged the RBI not to take steps that would make cost of credit higher, said that "the liquidity management will continue to receive priority in policy objectives."
Banking sources said that the RBI with its tight policy, being pursued since April this year, would have sucked up about Rs 50,000 crore of liquidity and there appears no let up in its hawkish stand during the rest of the year as it has forecast that hardening global crude prices would continue to exert pressure on the economy.
Besides the pressures from global commodity markets, the economy may also have to bear the burden of higher subsidies, loan waivers and increased salaries of government employees once the Sixth Pay Commission recommendations are implemented.
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