Home and auto loan rates to soar soon: RBI rates rise by 25bps
By Joseph Samson
Mar 22, 2010
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Home loan and auto loan rates are likely to be on an escalator in April. This is because of the unexpected hike in interest rates by the RBI on the evening of 19th March 2010. The rate hike has come a month before the monetary policy has been announced.

The decision of rate hike by RBI has been a resultant of the rising inflation rate of the country. The Central Bank has hiked short term interest rates named repo and reverse repo rates by 25 basis points.

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

Repo rate is paid by banks to borrow funds from RBI while they receive reverse repo for giving out their surplus funds to RBI.

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

The banks are expected to take steps as per the rise after the yearly bank closing on 31st March. According to Chanda Kochhar, CEO of India's second-biggest lender, ICICI, 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," she said.

Indian Overseas Bank chairman SA Bhat said, "I do not expect interest rates to go up in March... if at all, it may happen next month."

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

However, the country's largest lender SBI has denied plans of raising interest rates before April 20th. "We are not planning to raise lending rates till the credit policy next month. We are awash with liquidity," said O. P. Bhatt, chairman of SBI.


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