India’s central bank, Reserve Bank of India has raised the short-term lending rate in the process to curb inflation rate. At the same time, it kept the rate at which it borrows from commercial banks unchanged.

The Reserve Bank of India has decided to revise the rate with its quarterly review of the Indian economic growth. RBI was very much cautious in deciding the rate increase just to curb rising inflation without disturbing the liquidity and the momentum of India’s economic growth.

In the decision, the RBI lifted the repurchase rate, the rate, at which it lends to commercial banks, by a quarter point to 7.5 percent with immediate effect. Earlier, RBI had raised the rate in October 2006.

India’s economy has maintained a rapid 8.3 percent growth in the past three years. This year, it is expected to mark 9 percent growth. At the same time, the government as well as other policy makers is worried on the rising inflation rate. The inflation rate has increased to 6 percent in this fiscal year until yet.

According to the RBI, demand pressures appear to have strengthened, reflected in rising inflation, high money and credit growth, and elevated asset prices too.

The continuous high growth rate in the real estate sector, outstanding credit card receivables, loans and advances qualifying as capital market exposure, and moreover the personal loans as well are a matter of concern.

Later, the Finance Minister P Chidambaram also supported the RBI’s move by saying that this step is a signal to the banking sector that it should moderate credit growth.

The RBI also modified the provisions that banks must chose the sectors for loans such as real estate, stock purchases, and consumer loans.

Further, the RBI has said that it hopes to restrict the price hike and also hopes that inflation would go on average between 5.0 percent and 5.5 percent in this fiscal year.

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