Rationale given by RBI for hiking interest rates

♤ Tighter policy action aimed at puncturing the inflation balloon will help revive growth, although industry has been pushing for the opposite.

♤ There is enough liquidity in the system, so there will be no immediate increase in deposit and lending rates.

♤ Banks have seen huge inflows in the form of FCNR deposits and they are looking at opportunities at deploying those funds.

♤ There was also a warning that If RBI wants to knock out core inflation, the policy rate would have to be hiked further.

♤ It is noted that bringing down inflation to a low and stable level that monetary policy can contribute to reviving consumption and investment in a sustainable way.