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The Reserve Bank of India (RBI) raised its repo rate by 0.25 percent on Wednesday from 7.75 percent to 8 percent. The RBI hiked it short term lending rate, a move that is likely to force banks to increase interest rates and help check inflation. The RBI officials also claimed that the decision has been taken with a view to containing inflation expectations among other things.
The reverse repo rate, at which RBI borrows money from banks in exchange of the government papers has none the less been kept in tact at six percent. The RBI had earlier been trying to contain inflation by raising cash reserve ratio (CRR), the mandatory deposits that banks keep with RBI. State Bank of India (SBI), the country’s largest lender said it would examine the lending and deposit rates on Friday.
Abheek Barua, HDFC Bank Chief Economist revealed that the repo rate hike will have an implication on the bank’s lending rates. He further remarked that perhaps the prime lending rates of the banks will go up by about 50 basis points and there would also be a revision of bank’s deposit rates. Consumer, home, auto and other loans could now become costlier with the RBI hiking its short-term lending rate to banks by 0.25 percent. Apex business chamber FICCI stated, it feels that the RBI decision will adversely affect the manufacturing sector, which is already showing signs of a slowdown.
