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Be Ready To Pay More For Home, Auto Loans

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Be prepared to pay more every month on your home, auto and other loans, as the Reserve Bank of India on Thursday, for the 10th time since March, 2010, raised key interest rates by 25 basis points in its effort to control spiralling inflation. The RBI has raised the short-term lending (repo) rate by 25 basis points to 7.50 per cent and the short-term borrowing (reverse repo) rate will move up by a similar margin to 6.5 per cent. It kept other rates and ratios unchanged. The mid-quarterly policy initiatives, the RBI said, are expected to contain inflation, which is currently over 9 per cent, much above the comfort level of the central bank. "The RBI has sought to maintain an interest rate environment that moderates inflation and checks inflationary expectations," the Finance Ministry said in a statement, adding that this was on expected lines. "We need to have price stability for sustaining growth in the medium term," it added. Bankers said the move would put pressure on interest rates and may make loans costlier subsequently. Consumers To Pay For Rate Hike The rate hike is expected to be passed on to consumers, said ICICI Bank Managing Director Chanda Kochhar. "The RBI steps are on expected lines as inflation still remains stubborn and poses a serious threat to growth," Union Bank of India Chairman M V Nair told PTI here. He also said the bank will pass on the rate increase to customers "as credit growth has so far been robust this quarter". However, he refused to specify how soon the base rate hike would be effected. "It (RBI's move) will put pressure on short-term deposit rates and subsequently on the lending rates. But rate hike by banks would not be immediate," Indian Overseas Bank CMD M Narendra told PTI. Echoing a similar view, IndusInd Bank Executive Vice-President Moses Harding said the rate hike will push the shorter end of the rate curve with higher inversion into the longer end. Bank of Baroda Executive Director R K Bakshi, too, said the RBI move was expected, as inflation has become a serious threat to growth. Bakshi also hinted at the possibility of a base rate hike by his bank, saying though no automatic hike will be effected, the bank will act according to the liquidity condition, which he termed as comfortable as of now. According to Punjab & Sind Bank Executive Director P K Anand, there will not be any knee-jerk reaction from the banks, as the rate hike was on expected lines. IDBI Bank Executive Director R K Bansal said the market was expecting the hike and this may not result in banks increasing rates immediately. While announcing the measures, the RBI said that tightening of the monetary policy would impact economic growth, which is already under pressure, in the short term. With the rise in the repo rate, the interest rate for the additional lending facility of the RBI under the marginal standing facility (MSF) has gone up by 25 basis points to 8.5 per cent. This facility was introduced in the annual policy that was unveiled on May 3. Anti-Inflationary The monetary policy stance, the RBI said, "remains firmly anti-inflationary, recognising that, in the current circumstances, some short-run deceleration in growth may be unavoidable in bringing inflation under control." The economic growth rate in the fourth quarter of the last financial year decelerated to 7.8 per cent from 9.4 per cent in the same period a year ago, raising fears of a slowdown. Also, industrial production during April, 2011, moderated to 6.3 per cent from over 13 per cent in the same month last year. The moderation in growth has not deterred the Reserve Bank into taking a pause on its rate hike strategy, as the "challenge of containing inflation and anchoring inflation expectations persists". "Thus, while the Reserve Bank needs to continue with its anti-inflationary stance, the extent of policy action needs to balance the adverse movement in inflation with recent global developments and their key impact on the domestic growth trajectory," the RBI said. Pointing out that the inflation is at an uncomfortable level, the RBI said the present wholesale price figures "understate the pressure because (domestic) fuel prices have yet to reflect the global crude oil prices." Revised Rates In the last one-and-a-half months, several banks have revised lending and deposit rates following the annual policy announcement last month. Monetary transmission has been quite strong, with 45 scheduled commercial banks raising their base rates by 25-100 basis points after the May 3 policy. Cumulatively, 47 banks raised their base rates by 150-300 basis points during the July, 2010-May, 2011, period, the RBI said, adding that the higher cost of credit is restraining credit growth. However, it still remains fairly high, suggesting that economic activity is holding course. (PTI)