Interest rates to be hiked... again

RBI raises its short-term lending rates to banks by 0.25 per cent to rein in inflation; move will force banks to up all loan rates in turn

MUMBAI: Consumer, home, auto and other loans could become costlier with the Reserve Bank of India (RBI) again hiking its short-term lending rate to banks – repo rate – by 0.25 per cent to 8 per cent.
    Announcing the increase from the earlier 7.75 per cent level, the central bank said that the decision was taken with a view to contain inflationary expectations as the rate of rise in prices touched a 45-month high of 8.24 per cent.
    Analysts have already said that the pricerise indicator is expected to climb to over 9 per cent once the recent hike in petroleum prices gets reflected in the official wholesalebased price index (WPI).
    The move to increase repo rate, at which the central bank gives short-term money to banks in exchange of government securities, has been taken for first time in this fiscal year.
    It had earlier been trying to contain inflation by raising cash reserve ratio (CRR) – the portion of money that banks have to mandatorily keep with the RBI.
    RBI has, however, maintained the reverse repo rate, at which RBI borrows money from banks in exchange of government papers, at 6 per cent.
HIKE COULD BE IN RANGE OF 0.50-2 PC
Commenting on the RBI decision, Punjab National Bank chairman KC Chakrabarty said: "All interest rates would be affected. We will take a decision by this month-end. It (the move) will increase the cost of resources."
    The country's largest lender State Bank of India (SBI) said it would examine lending and deposit rates on Friday and will take a decision only after that.
    Real estate company Unitech said that it expected home loan rates to rise now that the RBI has upped repo.
    HDFC Bank's chief economist Abheek Barua said: "This (repo rate hike) will have an implication on the bank's lending rates. I think the prime lending rates (PLRs) of banks will go up by about 50 basis points (0.50 per cent). There would also be a revision of bank's deposit rates."
    However, officials at Bank of India said the decision could push up short-term rates while housing loan interest rates may go up by as much as 2 per cent.
INDUSTRIAL GROWTH TO SUFFER
Pointing out that rise in interest rates on consumer loans could hamper industrial growth, which had dipped to 3 per cent in March this year, industry chamber FICCI said: "The RBI policy is not going to help because the increase in prices is due to global phenomena."
    But Barua, while saying industrial growth will see an effect anytime soon, said: "This year, it will be at around 7-8 per cent which would be a sharp deceleration from the last year's numbers." AGENCIES