Interest rates and EMIs are set to go up again with the Reserve Bank today hiking its key rates by 25 basis points, the 12th time since March last year, to tame high inflation overlooking sliding growth.
The short-term lending (or repo) rate to banks by RBI stands revised to 8.25 per cent, while the borrowing (reverse repo) rate is set at 7.25 per cent.
Contrary to some hopes of a pause to rising rates, RBI said, "the premature change in the policy stance could harden inflationary expectations...it is, therefore, imperative to persist with the current anti-inflationary stance".
Having raised rates by 350 basis points since March 2010, RBI cautioned the monetary stance will be guided by the rate of inflation. The next policy review is due on October 25.
According to bankers, the rate hike will be passed on to customers in the weeks to come. "I believe banks would wait till the month-end before taking a call on interest rate," said Indian Overseas Bank CMD M Narendra.
For instance, home loan EMIs of Rs 20 lakh for 15-years would go up by about Rs 400. Auto loans will even cost more.
Finance Minister Pranab Mukherjee expressed hope that "measures (by RBI) would get us back to a more comfortable inflation situation earlier rather than later".
Concerned over sliding growth, Chief Economic Advisor Kaushik Basu clearly said "opinion was divided" on raising rates. "I would personally vote for a pause", he added.
Expectedly industry, notably the rate sensitive automobile and real estate sector, expressed disappointment.
While the inflation has stubbornly remained near double digit, the Q1 GDP slipped to 7.7 per cent from 8.8 per cent a year ago.
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