This hike being brought in the interest rates by RBI is the step taken by the bank to deal with pressure created by the rising prices. This is the ninth time since March 2010 that RBI has pushed the rates up.
The repo rate which is defined as the rate at which RBI lends to the bank is expected to rise to 7% that is a quarter-point rise. However, on the other side the reverse repo rate which is the rate at which the banks park their funds with RBI is assumed to reach 6%.
If we look at the food price index of India, it has been witnessing a rising trend since past few months and has now reached at 8.76% year-on-year basis during the week ending on April 16, 2011.
The economists are hoping that the increase in the rates made by RBI might happen by a total of 75 basis points during 2011 or around 50 basis points during the mid-March, as to control the inflation touching almost 9%.
Despite all the hopes being intact by the economists and analysts, it is more likely that the RBI might opt for raising the rates by 25 basis points. If this hike of 25 basis points happens, it will be followed by an immediate drop of around 5 basis points in the bond yields.
RBI will be sticking to this gradual policy-tightening approach as it doesn"t want to take any step which might ruin the economic growth of the nation.