Some banks have indicated that because of sufficient liquidity in the system at this point, they may not hike the lending rates. This would mean loan customers need not worry about increase in EMs at this point. But sooner than later, hike in lending rate is imminent. So loan customers, be prepared for your EMIs to rise.
In its Annual policy statement, RBI has announced a 25bps rate hike in each, repo, reverse repo and CRR. The repo rate now stands at 5.25%, reverse repo at 3.75% and CRR at 6%. This rate hike has been in line with market expectation but a tad lower than what some analysts were expecting.
The last rate hike was done just a month ago, on 19th March, 2010, where both the repo and reverse repo rates were revised upwards by 25bps. Markets were expecting a rate hike, because inflation hit double digits. Also RBI very clearly stated in its macroeconomic report released yesterday, that it was chasing inflation as it would eat into economic growth.
RBI’s stance
RBI maintains that economic indicators suggest that a recovery is in place. Its base line projection of real GDP growth for 2010-11 is placed at 8% with an upward bias, under the assumption of normal monsoon and good performance by both the industrial and services sectors.
Given that economic recovery is now firmly in place, RBI states that restoring the policy instruments at levels more consistent with a fast recovering economy will be the aim. This will be done in a calibrated manner and step in that direction has already been taken with a rate hike.
The primary objective of the rate increase is to contain inflation which has been a real cause for concern. The monthly inflation for March stood at 9.9%
Going forward, RBI will have a three-fold strategy which will include
- Anchoring inflationary expectations
- Actively managing liquidity
- Maintain interest rates in conjunction with economic growth
RBI’s focus has shifted from growth to containing inflation. RBI will closely monitor the price situation in the economy and take necessary action when it deems necessary.
Impact on the consumer
Some banks have indicated that because of sufficient liquidity in the system at this point, they may not hike the lending rates. This would mean loan customers need not worry about increase in EMs at this point. But sooner than later, hike in lending rate is imminent. So loan customers, be prepared for your EMIs to rise.