Home and car loans set to rise

Home loan and car loan rates are expected to rise in April. This is due to the sudden increase in interest rates by the RBI on 19th March 2010. The rate hike preceded by a month prior to the monetary policy is announced.

The decision to increase the rate is due to increasing rate of inflation in the country. RBI has increased short term interest rates called as repo and reverse repo rates by 25 basis points.

A statement from RBI said, “These measures should anchor inflationary expectations and contain inflation going forward. As liquidity in the banking system will remain adequate, credit expansion for sustaining the recovery will not be affected.”

The repo rate increased from 4.75% to 5% while the reverse repo rate increased from 3.25% to 3.5% with immediate effect.

The banks are supposed to take measures based on the increase after the annual bank closing on 31st March. Chanda Kochhar, CEO of ICICI said, “The bank “will wait and see the credit offtake and systemic liquidity to assess the medium-term impact on lending and borrowing rates. Currently, there is ample liquidity in the market.”

SA Bhat, chairman Indian Overseas Banksaid, “I do not expect interest rates to go up in March… if at all, it may happen next month.”

Keki Mistry, vice-chairman and managing director of HDFC said, “In the short term, cost of funds is unlikely to change much… It’s more a signal”.

But SBI has refuted plans of increasing interest rates prior to April 20th. O. P. Bhatt, chairman of SBI said, “We are not planning to raise lending rates till the credit policy next month. We are awash with liquidity”.