The Reserve Bank of India today raised the repo rate and the reverse repo rate by 0.25 per cent, each, with immediate effect, in order to curb inflation. The repo rate is the rate at which RBI lends, short-term, to commercial banks while the reverse repo rate is the rate at which it borrows, short-term, from commercial banks. Announcing its third quarterly monetary policy review review today in Mumbai, RBI said that it has increased its repo rate to 6.5 per cent from 6.25 per cent while reverse repo rate has been increased to 5.5 per cent from 5.25 per cent.This will make funds expensive for banks, and may lead to a hike in banks’ interest rates. The RBI also extended the additional liquidity support facility to banks till April 8, this year. But the Reserve Bank kept the Cash Reserve Ratio, the proportion of deposits that commercial banks must keep in cash with the central bank, unchanged at 6 percent. The Reserve Bank projected GDP growth at 8.5 per cent for 2010-11. It also warned that inflation is a matter of concern, and revised its projection for the current fiscal to 7 per cent, from 5.5 per cent forecast earlier. The apex bank said its monetary action was aimed at reining in rising inflationary expectations, while at the same time being moderate enough not to disrupt growth. The RBI further said it aims to contain the spill-over from rising food and fuel prices to generalized inflation, and continue to provide comfort to banks' liquidity management operations. Meanwhile, the stockbrokers said buying activity picked up immediately after the release of the policy with all sectoral indices trading in positive territory as the change in rates was in line with market expectations.