Get ready to shed more money when you pay your next EMI for Housing, auto and corporate loans as the Reserve Bank on Tuesday hiked the key lending rate by 0.25 per cent to contain inflation.
Reserve Bank Governor Raghuram Rajan raised the short-term lending (repo) rate by 0.25 per cent to 7.75 per cent and lowered the MSF rate by a similar margin to 8.75 per cent, extending his stated policy of gradual withdrawal of special measures announced earlier to check the falling value of the rupee.
Drawing support from stability in the forex market, the RBI eased some of the extraordinary measures taken to check the free-fall of the rupee against a dollar.
Apart from lowering the marginal standing facility (MSF) rate, the RBI closed a special window for commercial banks to meet the cash requirements of mutual funds (MFs) with immediate effect.
After the RBI hiked the key interest rate to curb price rises and enhanced liquidity for banks, the rupee bounced back 21 paise, its biggest gain in more than two weeks, to close at 61.31 against the dollar.
The benchmark Sensex shot up to an almost three-year high, jumping 359 points as investors cheered the RBI decision.
Financial stocks ICICI Bank, HDFC Bank, HDFC and State Bank of India contributed to almost half of the Sensex's gains. Auto stocks Maruti Suzuki and Mahindra & Mahindra were among the top gainers on the index.
Later, addressing the media, Rajan said, "If our projections (on inflation) and data do not quite match, then we will be induced to take further steps."