Your monthly loan installments may rise over the next few months.
The Reserve Bank of India (RBI) on Friday raised key lending rates, making it costlier for banks to borrow as focus shift towards combating inflation.
The RBI increased the repo rate (rate at which commercial banks borrow from the central bank) and the reverse repo rate (rate at which it borrows from commercial banks) by 0.25 percentage points to 5 per cent and 3.5 per cent, respectively.
This may force banks to hike the interest they charge borrowers such as home and auto buyers as well as companies.
Bankers, however, said the hike in interest rate might not follow immediately.
“It is more of a signal to the system and economy and reflects the RBI’s concern on inflation,” said Keki Mistry,
vice-chairman and MD, HDFC, India’s largest home loan company.
“I don’t think it will have an immediate impact on lending rates,” Mistry added.
Policymakers are grappling for options to contain inflation, which stands close to 10 per cent, without upsetting the recovery in the broader economy as investment and consumption demand picks up.
Higher demand for goods and costlier fuel have fanned manufactured products prices.
A rise interest rate would make it costlier for consumers to borrow, which will reduce demand and therefore reduce prices.
“RBI’s move reflects the growing confidence in the recovery of growth in the Indian economy and is in line with RBI’s stated objective of anchoring inflation expectations,” said Chanda Kochhar, MD and CEO of ICICI Bank.
“It’s a clear indication that rates are going to harden,” said Allen C.A. Pereira, CMD, Bank of Maharashtra..
”Banks have to take decision on the timing and it depends on each bank.”
Economists said the rate hike would not derail the growth process that is being reflected in a slew of recent data.
“It (RBI) is taking small steps that will not impact the growth momentum,” said, D.K. Joshi, principal economist at credit rating and consulting firm Crisil.