RBI to present annual monetary policy Tuesday

Mumbai,  (IANS) The Reserve Bank of India (RBI) will present the annual monetary policy for this fiscal here Tuesday amid a classical dilemma faced by all central banks to keep the momentum of growth or to rein in inflation.

RBI Governor D. Subbarao will present the policy before the chief executives of commercial banks. He has already signalled the exit of an accommodative monetary regime to tackle spiralling price rise by hiking key interest rates in recent months.

With a robust rise in demand, private expenditure gaining momentum and early signs of improving credit growth, most analysts expect the RBI to further hike the repo and reverse repo by as much as 50 basis points.

The repo rate now stands revised to 5 percent and the reverse repo rate to 3.5 percent. The repo rate is the interest charged by the RBI on borrowings  by commercial banks. A hike in this rate makes cost of borrowing costlier for the commercial banks.

The reverse repo rate is the rate at which the central bank borrows money from commercial banks. A hike in this rate makes it more lucrative for banks to park funds with the RBI.