MUMBAI: Fighting inflation the Reserve Bank of India (RBI) on Tuesday adopted a more hawkish stance as it announced its annual Credit Policy indicative of policy measures to further tighten liquidity.

The RBI hiked the Cash Reserve Ratio by 25 basis points to 8.25%, while leaving the repo and reverse repo rates unchanged at 7.75 % and 6% respectively.

With regard to the CRR hike, the RBI said that it was necessitated by the emerging liquidity situation in the market. However, the apex banking authority doesn’t want the credit to slacken as it expects a growth of 20% in credit uptake for FY’09. The RBI also expects deposits to grow by 17% FY’09.

While the previous installment of CRR hike would come into full effect on May 10, Tuesd's hike would take effect from May 24. The hike may compel banks to increase interest rates and temper demand for loans, which in turn could help ease inflation by reducing consumption.

Some banks have already announced an increase for select loans, like auto.

On inflation front, globally high commodity and fuel oil prices have forced the Reserve Bank to revise its comfort band from last year's near 5 per cent to 5.5 per cent this fiscal.

"There are concerns that demand pressures, which have been reasonably contained so far are being coupled with supply-side factors, which if not temporary, could impact domestic inflation significantly," the RBI said.

"Inflationary pressures from international food and energy prices appear to have amplified and by current indications, are likely to remain so for some time," it added

With rice and wheat prices increasing by 8.2 percent and 5.1 percent, respectively on a year-on-year basis on March 29, the rate cut is expected to control their prices and thus provide some relief to the middle class.

Incidentally, the RBI had in fact on April 17 announced a 50 basis points hike in the Cash Reserve Ratio (CRR) for banks in two phases - April 26 and May 10.