Loans likely to become costlier

The RBI raises the repo rate, the rate at which banks borrow cash from it, by 25 basis points, reports BSS Reddy.

Bank loans may get costlier now. The Reserve Bank of India (RBI) on Wednesday raised the repo rate — the rate at which banks borrow cash from it against government securities — to 7.5 per cent, up by 25 basis points.

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The higher cost of borrowing for banks is likely to push up interest rates across the board. Loans to buy a house, a car or any personal loan may become more expensive. Shopping through credit cards may also pinch.

The hike in the repo rate and other measures announced with it by the RBI were a clear attempt to rein in inflation and the runaway growth in the personal-loans portfolio of banks.

In his statement on the third quarterly review of monetary policy, RBI Governor YV Reddy said the objective was to keep the inflation rate between 5 and 5.5 per cent this financial year.