Loans will get costlier soon with RBI hike
Home loan, auto loan and personal loan borrowers may not be hit immediately by the Reserve Bank of India raising its repos rate by a quarter per cent on Thursday; till late in the evening bankers had not announced any immediate hike in their rates. But a hike in the lending rates is likely to happen in the near future as the RBI has indicated it
will “persist in its anti-inflationary stance, based on the current and evolving growth and inflation scenario”.
The RBI raised the repo rate (at which banks borrow from it) by a “baby step” of a quarter per cent to 7.5 per cent in its mid-quarter monetary policy review Thursday. While reiterating its concerns on increasing inflation, the RBI said the 9.1 per cent figure for May did not tell the whole story, as the impending fuel hike had not been taken into account. The stock markets reacted positively, but later turned negative on fears that further hikes implicit in the RBI’s statement would impact growth adversely. The RBI itself admitted that industrial growth had moderated to 6.3 per cent in April 2011, but growth in capital goods production at 14.5 per cent was buoyant, and the good monsoon augurs well for agricultural production. The RBI was clear “there is no evidence of any sharp or broad-based slowdown”.
This is the central bank’s 10th hike in policy rates, forcing commercial banks to raise their base rates between 1.50 to 3 per cent between July 2010-May 2011. Inflation has remained at a stubborn 9.1 per cent. The Reserve Bank observed that “the higher cost of credit is restraining credit growth, but it still remains fairly high, suggesting that economic activity is holding course.”
The RBI’s clear message is that curbing inflation is a priority over growth as inflation is way above the “comfortable level,” and is further aggravated by external risks from the global commodities markets.
Post new comment