Your home loans could get costlier, squeezing your budget further, with the Reserve Bank of India expected to announce another interest rate hike this week.
RBI governor Raghuram Rajan is likely to raise the repo rate, the key lending rate, by 0.25% points to 8% in the mid-quarter review on Wednesday, experts feel.
India’s wholesale inflation was at a 7-month high of 7% in October, and retail inflation at a 9-month high of 11.24% in November.
Rajan will be keeping an eye on the US Federal Reserve, which meets on December 17 and 18, amid anticipation that it will reveal a schedule for winding down its easy money policy as the US economy shows signs of returning to growth.
The rupee fell to below 62 to a dollar last week in anticipation of such a move. This could prompt foreign funds to move dollars away from India.
Industry leaders have been demanding an interest rate cut as high borrowing costs have crimped investments. Rajan, however, is unlikely to oblige. After the inflation report last week, he said RBI was “very uncomfortable” with the numbers, indicating a rate hike may be imminent.
“We remain of the view that Rajan will deliver his third repo rate hike,” Mole Hau of BNP Paribas said. Others felt it could even be steeper. “...A 0.50% point hike would not come as a surprise given the high numbers for retail inflation in November,” ratings and research agency CARE said in a research report.