RBI hikes lending rate; auto, home loan EMIs to go up

Tribune News Service

New Delhi, May 4

In an unexpected move, the Reserve Bank of India (RBI) on Wednesday increased the repo rate, the rate at which it lends to commercial banks, by 40 basis points (bps) to 4.40 per cent in a bid to contain inflation that crossed 6 per cent for three successive months. As a result, EMIs of home, auto and other loans are likely to increase.

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This is the first rate hike since August 2018, as well as the first instance of the RBI Governor-headed Monetary Policy Committee (MPC) holding an unscheduled meeting for raising interest rates.

The RBI also raised the cash reserve ratio (CRR) by 50 bps to 4.5 per cent, which will require banks to park more money with the central bank and leave them with less to loan to consumers. The CRR hike will be effective from May 21.

This would suck out Rs 87,000 crore liquidity from the banking system, RBI Governor Shaktikanta Das said, while announcing the decision. The raging inflation due to hike in commodity prices and high freight rates due to the Ukraine conflict prompted the rate hike, said Das. The announcement led to a slump on the bourses with the Sensex tanking nearly 1,300 points and Nifty 400 points.

The move will raise borrowing costs for corporates and individuals, but it would also mean higher interest rates on fixed deposits.

Pradeep Multani, president, PHD Chamber of Commerce and Industry, said though the step was aimed at addressing the inflationary pressure, it would hurt the consumer and business sentiment. The rate hike will impact the growth of real estate industry and may hit the housing demand, say industry players. CREDAI president Harsh Vardhan Patodia said, “We are witnessing trends of growth momentum in the realty. Though the rate hike will hit the buying power of consumers, we feel the impact will be taken in stride by homebuyers.”

Will hurt consumer sentiment: Experts

• Pradeep Multani of PHDCCI: Rate hike will hurt consumer and business sentiment
• Will hurt growth in real estate sector and affect housing demand, say experts
• CREDAI: Will impact buying power of consumers

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