RBI hikes short term interest rates to ease rupee volatility

The Reserve Bank of India (RBI) announces fresh steps to stem the continuing fall of rupee, the central bank on Monday night came out with a slew of measures including hiking the lending rates for banks and sucking up of Rs 12,000 crore, reports media.

The measures came after high level meetings between the Prime Minister and the Finance Minister followed by discussions with RBI Governor D Subbarao who was called here today as the rupee lost 33 paise to reach 59.

Under the measures announced, RBI raised lending rates to commercial banks 2 per cent to 10.25 per cent making the loans costlier, reports media.

The RBI will conduct sale of Government of India Securities to suck up Rs 12,000 crore on July 18 from the market, in a move to make rupee dearer.

Government has been under attack over the continuous decline of rupee from 53.8 levels against dollar in April.

Earlier in the day Subbarao has said that he will take into account the recent increase in inflation while formulating the policy later this month.

"Of course, we will take into account the inflation numbers," Subbarao told reporters after meeting Finance Minister P. Chidambaram at his North Block office in New Delhi.

According to data released by the commerce ministry here, wholesale price based inflation snapped fourth months of easing trend and increased to 4.86 percent in June as compared to 4.7 percent in the previous month.

Asked whether the increase in inflation would prevent RBI from cutting rates, Subbarao said, "I have no comment."

The RBI is scheduled to announce policy review July 30.

Subbarao said he discussed with the finance minister the issues concerning the forthcoming meeting of the G20.

"I have come to discuss the G20 issues with the finance minister," Subbarao said.