The Reserve Bank on Tuesday hiked its key short-term lending and borrowing rates by 25 basis points each with immediate effect to rein in inflation, a move that could increase banks’ commercial lending rates.

Accordingly, the short term lending rate or (repo rate) stands at 6.25 percent and the borrowing rate (reverse repo) at 5.25 percent.

The RBI has, however, left the cash reserve ratio or bank rate, which is the amount of cash that banks have to park with the central bank to maintain prudential norms, unchanged at 6 percent.

“These changes will be with immediate effect,” the Reserve Bank said while announcing the second quarter monetary policy review in Mumbai on Tuesday.

After announcing the latest round of rate hikes, which is the sixth since February this year, it said further rate action is relatively low in the immediate term, indicating that its consistent efforts at combating inflation has begun to bear fruits, even though this is still at a higher level.

So far, RBI has hiked the repo rate by 125 basis points (bps) one basis point is 0.01 percent – and the reverse repo by 175 bps, while it spiked the CRR by 100 basis points in two installments to tame inflation and to normalize the easy monetary and fiscal policies which were initiated by the RBI and government following the global financial crisis in September 2008.

The RBI is upbeat about the pace of economic acceleration and has accordingly retained its projection of GDP growth at 8.5 percent for this fiscal.

It, however, lowered the target for inflation to 5.5 percent by the end of this fiscal from previous projection of 6 percent.

RBI said the monetary policy is aimed at conditioning and containing inflation perception in the 4-4.5 percent region in line with the medium-term objective of 3 percent inflation.

Headline inflation stands at 8.6 percent for August, while the food inflation at an elevated 13.75 percent for the week ended 16th October.

“The monetary policy stance is aimed at containing inflation, anchoring inflationary expectations and maintaining an interest rate regime consistent with price, output and financial stability,” the apex bank said.

It further said it expects these rate hikes will help “sustain the anti-inflationary thrust of recent monetary actions and outcomes in the face of persistent inflation risks and to rein in the rising inflationary expectations, which may be aggravated by the structural nature of food price increases.”