RBI hikes REPO rate and CRR

RBI has increased the Repo Rate ( a rate at which RBI lends money to the banks etc.) by 50 basis points to @8.5% with immediate effect and Cash Reserve Ratio (CRR) by 50 basis points to @8.75% in two stages from July5 and July 19, 2008.
T a recent Repo hike of 25 basis points on June 11, 2008. The last CRR hike was on May24, 2008.

The four major issues that influenced RBI:

1. Inflation has increased to a 13 year high to @11.05% YOY as on June7, 2008
2. Investment demand remained strong increase spit of earlier increases
3. Strong internal consumption. Non-oil item import has increased considerably
4. Higher supply of oil bonds and other liabilities increased pressure on Government

Expected impact on Market

Short term money market rates to move up

Investor's should:
Invest @50% in debt fund with at least six months horizon
Invest @50% of the investible fund in Equity based Mutual Fund for longer term ( 3 years)