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MUMBAI: Home and car loans will get dearer, although fixed deposits could get more remunerative, after the Reserve bank of India (RBI) increased the policy rate by 0.25 percentage points to 6.25% from 6%.
This is the first time RBI has hiked the rate since January 2014, making it the first increase during the Narendra Modi government’s regime. The policy rate was 6.25% till August 2017, when RBI had cut it by 25 basis points.
The central bank increased the rate to combat inflation, which has been on the rise; it also increased its inflation forecast by 0.30 percentage points to 4.7% in the second half of the year.
That could mean another interest rate hike later in the year.
If there’s any cheer for borrowers, it’s that most banks had already started increasing their interest rates, perhaps in anticipation of the RBI rate increase, and may not immediately effect another sharp increase.
Shikha Sharma, the CEO of Axis Bank said “there are many measures that will help provide relief to banks and help in not raising rates sharply”.
But especially because RBI anticipates inflation to rise further, and could increase the policy rate again later this year,
it is likely that banks will continue to keep consumer loan rates tight, analysts say.
Over the past four months, top banks including State Bank of India, Punjab National Bank, Bank of Baroda, ICICI Bank Ltd and Kotak Mahindra Bank Ltd have increased the interest rate on home loans, car loans and personal loans by between 5-20 basis points.
A basis point is a hundredth of a percentage point.
“The MCLR (marginal cost of funds based lending rate) has already been increased. Even non-banking finance company, HDFC Ltd (India’s biggest mortgages company) , has increased lending rates. The market moved probably ahead of the curve in terms of lending rates. You have already seen the transmission,” said Shanti Ekambaram, president-consumer banking, Kotak Mahindra Bank Ltd.