The Reserve Bank of India has hiked the short-term lending or Repo rate by 0.25 per cent to 7.75 per cent. The RBI also brought down the cost of short-term funds for banks by slashing the Marginal Standing Facility or MSF rate by a similar quantum to 8.75 per cent.

Announcing the second quarter review of the monetary policy in Mumbai today, the RBI Governor Raghuram Rajan said, the policy stance and measures are intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth. Mr Rajan reduced the growth forecast for the current fiscal to 5 per cent from 5.5 per cent projected earlier.

The RBI left other rates such as, the cash reserve ratio unchanged at 4 per cent, and mandatory holdings in government securities and other liquid assets as a solvency measure at 23 per cent.

However, the Governor doubled the borrowing limit of banks against their cash positions or Net demand and time liability to 0.5 per cent for both 7-day and 14-day repos with immediate effect, to increase liquidity in the system.

The apex bank also allowed the banks to revise the periodicity of interest payments, thus enabling savings bank account and term deposit holders to earn interest at shorter intervals. Mr. Rajan said that as all commercial banks are now on core banking platforms, it has been decided to give banks the option to pay interest on savings deposits and term deposits at intervals shorter than quarterly intervals.