RBI hikes repo rate to fight inflation; home loan EMIs may rise World, October 29: Reserve Bank of India Governor Raghuram Rajan on Tuesday announced a 25 basis points (0.25 per cent) hike in repo rate or the benchmark rate as widely expected. The RBIs move may force banks to increase interest rates on loans leading to higher EMIs (equated monthly installments) for existing home loans and costlier retail loans for new customers. Dr Rajans second rate hike in as many months is aimed to fight rising inflation that hit a seven-month high in September. The RBI said headline inflation would have remained above 9 per cent in the coming months in absent policy action. Overall WPI (wholesale price index) inflation is expected to remain higher than current levels through most of the remaining part of the year, warranting an appropriate policy response, Dr Rajan said in his review. Radhika Rao, economist at DBS told Reuters that todays move was a follow-through of the hawkish September policy guidance as high and persistent inflation is seen as an impediment to the medium-term growth outlook. The new policy approach is a single-minded focus to contain inflationary expectations, with or without support from fiscal policy, she said. The central bank also lowered its growth forecast for current fiscal to 5 per cent from its earlier projection of 5.5 per cent. The RBIs projections are in line with that of the World Bank (4.7 per cent) and the International Monetary Fund (3.75%) which lowered the growth forecast for India earlier this month. Chandrajit Banerjee, director general of CII, however, said raising interest rate would hurt growth while proving unequal to the task of tackling inflation. After the hike, the repo rate or the rate at which RBI lends short term money to commercial banks, has gone up to 7.75 per cent. The cash reserve ratio, or the minimum percentage of the total deposits that commercial banks have to hold as reserves with the central bank, remains unchanged at 4 per cent.
Posted on: Tue, 29 Oct 2013 09:21:53 +0000
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