The RBI announced its Second Quarter Review of Monetary Policy for the Year 2009-10 today and as expected, has left the key rates unchanged. Though the RBI kept key rates unchanged, it hiked Statutory Liquidity Ratio (SLR), the deposits that commercial banks are to park in government securities, by one percentage points to 25 per cent.

While this should have brought some cheer to the markets, they plunged deeper into the red not only because the RBI looks set to raise interest rates going forward, but also because the central bank has upwardly revised its target inflation by March 2010 end to 6.5% from 5% earlier.

The upward bias in interest rates was apparent from the RBI's move to hike the statutory liquidity ratio (SLR) to 25% from 24%. Having said that, whether interest rates in the future rise or not will depend on whether the inflation continues to rise the way it is doing now, and the economic momentum continues to pick up pace.

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