Wednesday, June 11, 2008

Financial Sector News

June 11, 2008, 8.00 pm

This is just off the wires at this moment. The RBI [Reserve Bank of India] has raised the repo rate by 25 bps [bps= basis points / 1 basis point is 100th of a percent; so, 25 basis points is 0.25 %]. This is the first such hike since March 2007. The news was off the wires at barely one hour ago. And you can read this news on the NDTV Profit website as well, where it was published at 7.10 pm. So, I am not far off!

What is a repo rate? The repo rate is the rate at which the RBI lends money to other banks in the country. This is a move to fight inflation in the economy. If the RBI makes it costly for the banks to borrow money, they would be able to lend money to customers at a higher rate, which would help in curbing spending in the economy and thus, help in curbing inflation.

What is RBI? The RBI is the Indian Central Bank, the same way as the Federal Reserve is the US central bank.

It remains to be seen what impact the RBI move will have on the economy. The hike in petrol prices is going to increase inflation anyway...Let us wait and watch.

But one thing is certain--the stock markets are going to open gap down tomorrow morning and they are likely to be volatile as well.

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