|
The
Reserve Bank of India’s decision on Tuesday to increase two key policy rates is expected to
contain inflation and is bound to hike banks’ cost of funds. This, bankers say,
could lead to a rise in interest rates, including on home and car loans,
although not immediately.
With inflation hovering at over 10%,
the RBI in its quarterly review of the credit policy increased the repo
rate(the rate at which it lends short-term to banks) by 0.25 percentage points to
5.75% and the reverse repo rate (at which it accepts short-term funds from
banks)by 0.50 percentage points to 4.50%. However, the RBI left the cash
reverse ratio(CRR), the portion of deposits that the banks have to maintain in
cash with the central bank, unchanged at
6%, thereby refusing to squeeze liquidity out of the banks.
Tuesday’s hike in the repo and
reverse repo rates follows hikes of 0.25 percentage points for each on July 2
and is the fifth hike in these rates since January this year.
Reacting to the RBI’s moves, bankers
said that with liquidity already tight and deposits not growing as much as
expected, banks may have to increase interest rates on both deposits and
leading at some point. While they maintained
that the rates may not be revised immediately, they are bound to go up
in the medium term, the bankers said.
As all the banks have already fixed
their benchmark base rate, which can now be revised only from October 1,
existing borrowers, banks can charge higher interest rates by raising the differential they charge
over and above the base rate
|