EMIs may stay high

In the continuing contest between sliding rupee, falling investments, crunching growth and high inflation, the RBI is expected to retain its key lending rates at current levels, keeping EMIs at the same level. Gaurav Choudhury reports.

The wait for lower equated monthly installments or EMIs could just get a little longer.

In the continuing contest between sliding rupee, falling investments, crunching growth and high inflation, the Reserve Bank of India (RBI) is widely expected to retain its key lending rates at its current levels in its quarterly policy review on Tuesday.

As a result, banks are unlikely to cut lending rates. So, your home loan EMIs may remain high.

A persistently falling rupee, which has slid more than 13% since May, has added to an array of macroeconomic problems for RBI governor D Subbarao, who will possibly present his last monetary policy review on Tuesday before his term ends in September.

In the last couple of weeks, the central bank has taken a string of measures to suck out money from the banking system, making it costlier for banks to raise funds (see graphic). Some experts have termed the moves as an indirect interest rate hike.

"Considering that it still intended to lift interest rates to address currency stability concerns, it initiated quantitative tightening measures to lift the market rates without adjusting the repo rate," Morgan Stanley said in a recent research report.

India's factory output contracted 1.6% in May, while exports fell by 4.6% in June.

India's wholesale price index (WPI)-based inflation inched up to 4.86% in June, reversing a four-month falling trend on higher food prices such as onions and vegetables.

Consumer price index(CPI)-based inflation grew 9.87% in June from 9.31% in the previous month, on costlier vegetables and food items.

"As long as CPI inflation remains close to double-digits and the balance of payment at risk, we expect the RBI to remain on hold," said Sonal Varma, economist at broking and research firm Nomura.