RBI hiked interest rates by 25bps for the 10th time in 16 months as it resists handling the mounting inflation. The RBI has raised the short-term lending (repo) rate by 25 basis points to 7.50 per cent and the short-term borrowing (reverse repo) rate by a similar margin to 6.5 per cent.
The purpose of hiking interest rates is to reduce the money supply to the public. Higher rates of interest implies that borrowing will not be easy for those who wish to invest in new industries, expand existing infrastructure, purchase houses or vehicles, etc. This has a negative tendency of slowing down growth
Like the markets reacted very negatively to this act and this latest hike will further dampen the auto sector because industry is already under pressure and this fresh step will further worsen the condition, followed by high inflation and high fuel prices.
Other factor which affected world markets and currencies was rate hike by China and Australia is on the cards which resulted in weakening of Euro and Dollar.
Finally coming back to Indian Scenario, Dalal-Street experts see Sensex sinking to 15k by December 2011. Investors worldwide are more risk-exposed because of the European crisis and this will result in the market trending lower over a period of time. The majority of the factors affecting inflation are given out from a gush in prices of imports and exports which RBI is not able to handle ad so it should wait and watch more local and global data before taking further actions.

What’s on economy these days…???

Inflation petrol prices all time high and European zone debt crisis..Most importantly RBI hiking rates again and again and because of that we see share markets coming down and almost all the industries in the country are getting affected.

First of all if we’l talk about European sovereign debt crisis or Greek Debt Crisis particularly.

In 2010 the debt crisis was mostly centered on events in Greece followed by Ireland and Portugal the most..they have 'credibility problem', because they lack the ability to repay adequately due to their low growth rate, high deficit, less investments etc. On 2 May 2010, the Eurozone countries and the International Monetary Fund agreed to a €110 billion loan for Greece, conditional on the implementation of harsh Greek austerity measures. The Greek bail-out was followed by a €85 billion rescue package for Ireland in November, and a €78 billion bail-out for Portugal in May 2011.

If we see the present situation Greece’s 18-month sovereign debt crisis brought the government to the brink of collapse.

Along with that the fall of the Irish and Portuguese governments in recent months has driven the countries into bankruptcy. Despite the sharpening sense of urgency, European Union governments, the Europe Central Bank, and the European Commission remained gridlocked over how to respond to the debt emergency, which pushed Greece closer to sovereign default and Europe towards a fresh banking crisis. These borrowing costs soared to record levels as investors took fright which resulted in suffering for global stock markets

Albeit Germany has back tracked from this Greece crucial stage while promising a debt compromise plan but Till date European Central Bank, IMF, Bank of England are trying to take out possible measures for dealing with this problems. e.g

The 17 Eurozone finance ministers has structured a new three-year bailout for Greece in Luxemborg in a way that would persuade European banks, pension funds and other private creditors to roll over the country's inflated debt releasing bailout package of 110 billion Euros (159 billion dollars).

All these steps are taken with a hope that it will solve the Greece debt soon and thereby improving their economy.