The central bank's decision to raise the repo rate is a signal to commercial banks either to increase their deposit base or improve credit quality appraisal, RBI Deputy Governor Rakesh Mohan said on Tuesday.
"The signal is that the banks, whose demand for resources are to be met from RBI, will have to pay a higher interest,"
Mohan told reporters at the RBI headquarters' in Mumbai.
On price rise, Mohan maintained that RBI was committed to contain inflation at the projected range of 5-5.5
per cent.
He, however, said international commodity prices may have an impact on inflation.
Mohan was talking to reporters after the mid-term review of the credit policy, in which the Reserve Bank of India increased the repo rate -- at which it lends to commercial banks -- by 25 basis points to 7.25 per cent.
Monetary and Credit Policy 2006-07: Complete Coverage