With the current decision, the short-term lending (or repo) rate at which banks borrow in the RBI stands increased to 8. 25% and the short-term borrowing (reverse repo) rate where banks park their funds with the RBI to 7. 25%.
Heading inflation rose to 9. 8% in the month associated with August from 9. 2% in July this year.
Regardless of the RBI hiking rates several times since March, headline and food inflation are near to double digits.
"As such, a premature change in the actual policy stance could harden inflationary expectations, thereby diluting the actual impact of past policy actions. It is, therefore, imperative to persist using the current anti-inflationary stance, " the RBI said in its mid-quarter overview of the monetary policy.
Going forward, the RBI's stance is going to be influenced by signs of downward movement in the inflation flight, to which a moderation in demand is expected in order to contribute, besides the implications of global developments, it stated.
"The step is consistent with the RBI monetary stance for that first half of 2011-12 and overall concerns on growth sustainability within the medium term.
"I am hopeful that measures taken would get us back a far more comfortable inflation situation earlier rather than later, while having scope for growth to get in the second half of the year, " Financial Minister Pranab Mukherjee said.
Commenting on the rate backpack, Indian Overseas Bank Chairman and Managing Director M Narendra said banks have to pass on the hike to customers as the price of funds has gone up.
"I believe banks would wait till the month-end before taking a call on mortgage loan hike, " he said.
"The rate hike is on expected lines and would lead to interest rates, both deposit and lending, going up, inch Oriental Bank of Commerce Executive Director S C Sinha stated.
Echoing similar views, Corporation Bank Chairman and Managing Overseer Ramnath Pradeep said, "Banks will have to raise prices, but when and how will be decided by person banks, depending on their asset liability conditions. "
Based on Punjab and Sind Bank Executive Director P K Anand, the impact from the policy rate hike will take effect with a period lag.
The banks, he said, will maintain the current rates a minimum of for the next 15 days and take a ask revising them after ascertaining credit demand.
Earlier this 7 days, State Bank of India Chairman Pratip Chaudhuri had said when the RBI raised interest rates, banks would have to spread the increase to customers.
"It has to be monetary transmission, " Chaudhuri had said.