"It (RBI's move) will put pressure on short-term deposit rates and subsequently on the lending rates. But rate hike by banks would not be immediate," Indian Overseas Bank CMD M Narendra said
Mumbai: Be prepared to pay more every month on your home, auto and other loans, as the Reserve Bank of India today, for the 10th time since March 2010, raised key interest rates by 25 basis points in its effort to control spiralling inflation, reports PTI.
The RBI has raised the short-term lending (repo) rate by 25 basis points to 7.50% and the short-term borrowing (reverse repo) rate will move up by a similar margin to 6.5%. It kept other rates and ratios unchanged.
The mid-quarterly policy initiatives, the RBI said, are expected to contain inflation, which is currently over 9%, much above the comfort level of the central bank.
"The RBI has sought to maintain an interest rate environment that moderates inflation and checks inflationary expectations," the finance ministry said in a statement, adding that this was on expected lines.
"We need to have price stability for sustaining growth in the medium term," it added.
Bankers said the move would put pressure on interest rates and may make loans costlier subsequently.
"It (RBI's move) will put pressure on short-term deposit rates and subsequently on the lending rates. But rate hike by banks would not be immediate," Indian Overseas Bank CMD M Narendra told PTI.
While announcing the measures, the RBI said that tightening of the monetary policy would impact economic growth, which is already under pressure, in the short-term.
Stories of price manipulation
Exelon infrastructure (Rs75)
Exelon Infrastructure is ostensibly engaged in oil trading and infrastructure development. In February 2011, it announced plans to set up a coal-based 350MW power plant in Andhra Pradesh. The company’s revenue for the past nine quarters ranged between Rs5.63 crore in the March 2009 quarter and Rs14.33 crore in the March 2011 quarter. Operating profit was between Rs22 lakh in the March 2009 quarter and Rs38 lakh in the March 2011 quarter. In the June 2010 quarter, operating profit was at Rs1.08 crore and revenue at Rs12.07 crore.
Amazingly, despite such shaky fundamentals, the stock soared 651%—from Rs9.85 on 8 December 2010 to Rs73.95 on 20 May 2011. With the exchanges and the regulator being somnolent, operators are having a field day.
Frontline business solutions (Rs26)
Frontline Business Solutions provides value-added solutions and services in staffing, sales and marketing of telecom, financial products and back-office processes. The company’s financials in the past nine quarters have been miserable. It posted nil revenue in the September 2009, December 2009 and June 2010 quarters and revenue in the other quarters ranged from Rs3 lakh in the March 2009 quarter to Rs10 lakh in the March 2011 quarter.
It reported operating losses from the March 2009 to December 2009 quarters and had an operating profit of Rs3 lakh in the March 2011 quarter. A company with such absurd financials saw its stock soar 2482%—from Rs0.98 on 29 June 2010 to Rs25.30 a piece on 20 May 2011. Yet, the regulators have not noticed the manipulation!