The Reserve Bank of India has hiked the key interest rates, which are now at 13 year high, to curb the inflation in the country. The rate at which it lends short term loans to commercial banks has increased to 8.5 percent from earlier 8 percent. The cash reserve ratio i.e. the amount commercial banks have to keep with the RBI, has also increased to 8.75 percent from 8.25 percent. This has eventually led to an increase in interest rates for car loans in India.

Governor of the Reserve Bank of India, Y. Venugopal Reddy, described the situation as "painful but necessary". The wholesale price index of the country is also at 13 year high at 11.5 percent which was just 4.3 percent a year earlier. The government aims to bring down inflation by cutting down liquidity to borrowers and banks by increasing the lending rates.

State Bank of India had refrained from increasing the interest rates on June 11 when the RBI had increased the repo rate by 25 basis points to 8 percent. However, this time it may not be able to do so as RBI comes back with fresh revised rates in rein in inflation.