Tuesday, July 26,
RBI surprised the market today with a 50 bps (basis points) hike in its main policy rates announced in its first quarter review of its monetary policy.
The rate hikes are considered to be the eleventh successive hike since March 2010 and it takes the repo rate to 8% and the reverse repo rate to 7%. However, it has kept the cash reserve ratio (CRR) unchanged at 6%.
The market had expected a 25 bps hike in this quarter because of inflationary conditions. However, bankers had appealed to the RBI last week to hold the hike because of a slight slack in credit growth and lower industrial output in May.
Recent industrial output and manufacturing data was the worst in nine months, while sales of cars have slowed down sharply and loan demand is easing, complicating the central bank’s inflation-fighting task.
Bankers are of view that the increase in key policy rates by the RBI will definitely have an impact on interest rates, leading to loans becoming expensive.
All loans, including auto, home, personal and other corporate borrowings, are expected to cost more following the RBI’s decision.
Expectedly, industry expressed its disappointment over the sharp increase in interest rates, saying the move would harm the investment sentiment.
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