Mumbai: Get ready to pay more on your home loans, car loans and consumer loans. For industry too, the cost of funds is set to rise. Late on Tuesday, the Reserve Bank of India hiked two key policy rates — the repo rate and the cash reserve ratio — by a steep 50 basis points (100 basis points = 1%). The intensity of the hikes appears to have caught a lot of people by surprise, and leaves little doubt that for the Manmohan Singh government, runaway prices represents clear and present danger.
Financial sector players say banks will raise interest rates by half a per cent or more, and the stock market could take another knock when it opens on Wednesday.
Aimed at reining in an inflation rate that is now at a 13-year high of 11.05%, RBI raised the repo rate to 8.50% from 8% with immediate effect. It also decided to increase the CRR from 8.25% to 8.75% in two stages. From July 5, the CRR will be set at 8.50% and from July 19 at 8.75%.
This is the second time in less than a fortnight that the RBI has raised the repo rate to contain inflation. It’s the rate at which banks borrow from RBI. A hike in the repo rate will make it more expensive for banks to get money from RBI, which is likely to force them to charge customers a higher interest rate. On June 11, the RBI had raised the repo rate by 25 basis points. Last month, it had raised CRR by 50 basis points.
RBI’s decisions are expected to force banks to raise interest and deposit rates. Higher interest rates will affect those who wish to borrow to buy a house, a car, or consumer durables like fridges and TVs, and it will also hurt those who have taken home loans on a floating rate basis. Higher rates also mean that corporates now have to pay more as interest costs. ‘‘The question is not whether rates will go up, but by how much,’’ said a senior official with a domestic financial house.
To rein in inflation, RBI hikes repo rate and cash reserve ratio by 50 basis points. Repo rate raised to 8.5% from 8%, and CRR to 8.75% from 8.25%
0 comments:
Post a Comment