Tuesday, July 26, 2011

Reserve Bank of India, RBI raised interest rates by a higher-than-expected 50 basis points on Tuesday,26th July, Home, auto loans to cost more: Banker

The RBI raised interest rates by a higher-than-expected 50 basis points on Tuesday, stepping up its fight against persistently high inflation despite slowing growth in India.

The RBI increased the repo rate, at which it lends to banks, to 8%, exceeding market expectations that it would raise rates by 25 basis points.

Reserve Bank's decision to raise key rates for the third time in the current fiscal would make home, auto and corporate loans expensive by up to 50 basis points, burning another hole in the pocket of the consumer already burdened with high inflation.

"The hike is more than expected and it will push interest rates (lending and deposits) up by upto 50 basis points," Oriental Bank of Commerce Executive Director S C Sinha told PTI.

The RBI has raised the short-term lending (repo) rate by 50 basis points to 8% and the short-term borrowing (reverse repo) rate will move up by a similar margin to 7%.
Subsequently, the interest rate under the Marginal Standing Facility, an additional borrowing window, has gone up to 9% from the earlier level of 8.5%.

This is the 11th time since March, 2010, that the RBI has raised the interest rate to check inflation, which is currently ruling at over 9%.

RBI's action is in a direction which creates persistent pressure on credit demand. ALCO (Asset Liability Committee) needs to review on the transmission mechanism and timing, said Bank of Baroda Executive Director R K Bakshi.

The rate hike by the RBI will definitely slowdown credit demand, Bakshi added.

According to Indian Overseas Bank Executive Director A K Bansal, sooner than later, both lending and deposit rates will go up.

Banks would take a call on interest rates in their respective ALCO in the next few days, Bansal said.

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