Reserve Bank of India today raised the key policy rate by 0.25 per cent to 8 per cent in a bid to curb inflation.
The move that may translate into higher EMIs and push up the cost of borrowing for corporates.

Releasing the Third Quarter Review of Monetary Policy in Mumbai today, RBI Governor Raghuram Rajan said, the reverse repo rate under the liquidity adjustment facility will be revised to 7 per cent.

However, the RBI kept the cash reserve ratio unchanged at 4 per cent as liquidity seems to be comfortable.
Rajan said, Consumer Price Index is too high and we need to bring it down. The RBI governor said, inflation is a tax that is grossly inequitable, falling hardest on the very poor.

He said, inflation has to be brought down to sustain growth in the medium term. The retail inflation, which stood at 9.52 per cent for December, is likely to soften further in the January-March quarter on seasonal softening in fruit and vegetable prices.

For the fourth quarter, the headline CPI inflation is expected to range between 7.5 and 8.5 per cent with an upside risk.

The Governor said economic growth will be below 5 per cent in the current financial year and can accelerate to 5.5 per cent next finacial year. He said, slowdown in economy getting increasingly worrisome.

In line with the Urjit Patel committee recommendations, monetary policy reviews will now be undertaken every two months, consistent with the availability of key macroeconomic and financial data.

A survey of professional forecasters, polled by the central bank, said there will be a modest recovery in growth in Financial Year 15, even though inflation pressures are likely to persist.

The central bank further said if the nearly 130 projects worth over Rs. 4 lakh crore cleared by the Cabinet Committee on Investments translate into investments, global growth improves and inflation softens, the country's GDP growth could come in at the higher reaches of the forecast range of 5-6 per cent.

On the exchange rate, they expect the rupee to be at the 61 levels by December this year.

Referring to the external sector, the report said the current account deficit, which touched an all time high of 4.8 per cent at 88 billion dollars in Fiscal year 13, will ease to 2.5 per cent this fiscal.

The RBI report also flagged concerns from the upcoming elections, saying though normalcy has been restored recently in the financial markets, political outcomes and commitment to reforms hold the key for the future stability of the market and the rupee.