Interest Rate on Saving A/c - Changed and New

The Reserve Bank of India (RBI) had hiked repo rates by 0.25 per cent (25 bps) to 8.5 per cent while the reverse repo rate stands adjusted to 7.5 per cent with immediate effect. This is the thirteenth rate rise since March 2010 for the central bank in its bid to curb inflation. The RBI also announced deregulation of the savings bank deposit rates. "Banks are now free to determine their savings bank deposit interest rate, subject to certain conditions," the governor said at a press conference.

What comes as a relief is that the governor has has indicated that there would be no rate hikes in the December mid quarter review and added that the central bank would begin easing rates once inflation starts easing rates once inflation starts easing. Subbaroa is confident inflation will begin to ease in the first half of fiscal year 2013.

Click here to read RBI's policy announcement

Food inflation rose sharply to cross double digit levels at 10.6 per cent for the week ended October 8 as against 9.32 per cent in the previous week despite monetary policy tightening that has made the RBI one of the most aggressive central banks anywhere over the last year-and-a-half. The headline inflation in September was recorded at 9.72 per cent.

Economists and bankers alike, however, are irked by the constant rate hikes and say the hikes are unwarranted as it was only hurting India's growth prospects. It would isolate India even further in a global policy landscape that has every other central bank turning dovish in the face of a euro-zone crisis and recessionary signals in the developed world. But the governor and his board have little choice, given the meager help from the government in tackling supply side issues.

The central bank has cut India's growth forecast to 7.6 per cent for the fiscal year 2012 from its earlier forecast of 8 per cent. India's economy grew at 7.7 per cent in the June quarter, its weakest pace in six quarters.

In an interview to CNBC-TV18, Chief Economic Adviser, C Rangarajan said that he expects India's growth to be slightly higher that the Reserve Banks forecast of 7.6 per cent and still expects the GDP to grow at 8 per cent. He, however, fears that the deregulation of deposit rates would force commercial banks to soon pass on the interest rates hikes to customers by hiking their lending rates.

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