New Delhi, India (AHN) – For the sixth time in 2010, the Reserve Bank of India (RBI) increased the interest rates by another 25 basis points (bps) just to check the inflation rate, which has shown no signs of reduction for the past more than one year.

The repo rate at which the RBI lends to commercial banks was raised to 6.25 percent while the reverse repo rate, at which it pays to banks for deposits, was increased to 5.25 percent. The Cash Reserve Ratio (CRR), which is the amount of money commercial banks need to keep with the Central bank, however, remained unchanged at 6 percent.

The hike in the interest rates is not at all surprising, especially in wake of the fact that India has been the foremost nation in the whole Asian region, to fight back the soaring inflation rates with frequent hikes in the interest rates. Experts believe that it is this approach that has made India one of the few countries to recover so well after the 2008 global economic crisis.

Speaking with regard to the second quarter monetary policy review, RBI Governor Duvvuri Subbarao said, “Based purely on current growth and inflation trends, the Reserve Bank believes that the likelihood of further rate actions in the immediate future is relatively low.”

According to the latest key data in the RBI’s November 2, 2010 review, the annual wholesale price index for September was up by 8.62 percent as compared to 8.5 percent in August. The inflation rate in food, also remained high, despite easing down to 13.75 percent in the middle of the October month.

The apex bank’s policy review also noted that the “growth-inflation outlook” was likely to dominate the policy response.

Allaying public fears with regard to loan facilities to purchase home and car, the RBI said that the cost of such loans would not increase immediately.

Explaining this further, Chairman of the nationalized State Bank of India, O. P. Bhatt said, “The transmission mechanism between RBI and rest of the financial system does not work very fast. It always works with a time lag.”

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