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Economy

RBI Hikes Interest Rates By 0.50%

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The RBI increased Repo rates to 8% (from 7.50%), a 50 basis point increase. Repo is what banks pay to borrow overnight from the RBI, a key rate that is usually the floor for inter-bank lending rates and thus interest rates in the system.

Reverse repo (or what banks get for parking money with the RBI) is now at 7.0%, up from 6.5%.

My earlier post talked about the strong language in yesterday’s first quarter review and thus the small (20%) chance that the hike would be more than the normal 0.25% which was more or less expected.

Here’s a quick historical repo rate chart. More analysis later in the day.

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We are at the highest since November 2008 and have been higher only for five months (June to October 2008) when oil hit the $140 per barrel limit and then all hell broke loose with Lehman and co. I don’t think this is a predictor of a crisis (come on, a data size of one?).

Markets: Nifty has fallen 90 points (short of 2%) at 5590. BankNifty is down nearly 2.5%, and the CNX Realty index is down 3%.

The 10 year bond yield jumped from 8.30% to 8.38%. Overnight indexed swaps (OIS) stay flat at 8% for one year, and an inverted 7.57% for five years. This is not dramatic for the bond markets, yet.

More to come…

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