RBI ups repo, reverse repo rates by 0.25%

The Reserve Bank of India (RBI) has hiked the repo and reverse repo rate by 25 basis points (100 bps=1%). The new repo and reverse repo rate is 5% and 3.5%, respectively. The hike comes into effect immediately.

The rate at which the central bank lends money to commercial banks is called the repo rate while the reverse repo is the rate at which RBI borrows money from bank

The central bank promises to take further action as and when warranted. "We continue to monitor macro conditions and the price situation. The steps undertaken will help anchor inflationary expectations and contain inflation," RBI said in a statement.

The Reserve Bank is hiking rates in small doses as it does not want to hurt growth, Kaushik Basu, Economic Advisor to the Finance Ministry, told Reuters. "RBI rate hike is aimed at curbing and significantly anchoring inflationary expectations. Inflation was seen spilling over to manufacturing. The real economy is strong, so a rate hike will not hurt industrial output. This is a signal that though growth is an imperative, inflation is a concern."

Basu said, "Going forward, I am not ruling out another rate hike, but that depends on the data relating to the prevailing inflationary situation."

10-15% mkt rise in a month not good for India: Blackstone

Being within striking distance of 5,300—the January highs, the S&P Nifty of the National Stock Exchange (NSE) has been witnessing huge amount of volatility since the past one week. Standard & Poor's has lifted its outlook on India to stable from negative, citing an improving fiscal position and strong economic growth. This is likely to boost market sentiment.

Punita Kumar Sinha of Blackstone though saw confidence building towards India, she, however, felt that a 10-15% rise in the markets in a month might not be good for the country. “The valuations are a bit more stretched and depend on growth,” she said, adding that ample liquidity and strong demand was triggering growth.

Mkts to trade sideways for a while: Macquarie

Macquarie Capital Securities has a positive bias on India and sees the US economy improving. In an exclusive interview with CNBC-TV18, Mark Matthews of Macquarie Capital Securities said Indian markets should continue to trade sideways. He remains bulish on dollar.