The Reserve Bank of India (RBI) has in effect called the end of the financial crisis in India, and is the third central bank to do so, after Australia and Israel.
The Australian Central Bank on 6 October 2009 became the first G7 monetary authority to raise its interest rates, which was a positive sign for both Australia and the world. It raised its rates to 3.25%, with the possibility of a further 50 bps raise next week. Back in August, Israel raised rates from 0.5% to 0.75%, and there are signs Norway and South Korea are set to do the same.
The RBI has not raised interest rates. Since it has kept rates higher than any other developed economy (the key lending rate or repo rate currently stands at 4.75%) it doesn't need to make a drastic change there. The consensus is that it definitely will by April next year, with a 50% chance of a move this year, according to an economist survey.
Instead what the RBI is doing is tightening some of the extraordinary measures it had put in place in response to the credit crunch. A special facility to provide liquidity (ie money) to financial firms is being withdrawn, as private funds move back and inflows of FDI and FII into the market. It has raised commerical real estate rates, worried that a new bubble is building up.
Significantly the RBI also tightening some of the capital requirements it has for Indian banks. It is raising the 'statutory liquidity ratio', the amount of money that a bank needs to keep in cash, gold or government bonds, to 25%, up from 24%.
