Thursday, March 17,
RBI has announced a policy rate hike of 25 basis points in its mid-quarter review today..* The repo (rate at which it lends to banks) reached to 6.75% and reverse repo (rate at which it borrows) reaches 5.75%. However, the CRR has been left unchanged at 6%.
The RBI has so far hiked rates seven times during the last one year.
Given the immediate backdrop of the tsunami and the unfolding nuclear catastrophe in Japan and its impact on global markets, one expected the RBI to press the ‘pause’ button in its rate tightening cycle.
Commodity and stock markets have taken a beating everywhere. Therefore, a further hike in repo and reverse repo rates of the RBI could presumably make markets a bit nervous.
But the dominant concern over the past year has been and continues to be high inflation. The consensus now is that higher food prices are no longer the main driver of inflation – but that manufacturing good prices have contributed the most to it.
Expectations are already there that because of higher commodity prices, higher interest rates and higher wage increases, most companies would have their margins squeezed next year.
Cost of funds for banks is also on the rise. Banks have begun passing this on to borrowers as they start hiking their base rates. Therefore, chances are there for home loans, car loans and personal loans to get a little expensive very soon.
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