The annual monetary policy of Reserve Bank of India for this fiscal brought in a giant step by the regulator in terms of policy rates to tame inflation. So far RBI had been taking small and steady rise in policy rates in terms of 25 bps. This monetary policy has however brought a 50 bps rise in the policy rates.

As a result of this hike, the repo rate has shot up to 7.25% as against 6.5% so far. The revised rates have been implemented with immediate effect.

The reverse repo rate has been raised to 6.25% from 5.75% earlier.

Commenting on the step taken, RBI governor, D Subbarao said, "In the long-term, inflation is inimical to growth.... We need to bring inflation down in order to sustain medium term growth even if that means sacrificing some growth in the short-term."

Also savings bank account rates have been raised to 4% from 3.5% earlier. The last time this rate was revised was back in 2003. However, the governor has clarified that a rise in the SB rates does not in any manner hint towards deregulation setting in.