Home, auto loans may cost more as RBI hikes repo rate

Home, auto loans may cost more as RBI hikes repo rate

The monetary policy committee lifted the repo rate by 25 basis points to 6.25 percent, the first increase since January 2014, as predicted by 46 percent of respondents in a Reuters poll this week. Reuters

Home and auto loan rates are likely to go up in the coming days as the Reserve Bank of India (RBI) on Wednesday hiked the bank repo rate by 25 basis points (bps) to 6.25%.

The move by RBI comes after a span of four years prompted by inflationary pressures arising out of rise in crude oil prices. Similarly, interest rates on deposits are also slated for a rise, according to banking sources.

The repo rate is the rate at which banks borrow from RBI.

The last hike in rates was seen in January 2014, when the RBI had increased the repo rate to 8%. Subsequently, the rates were brought down to 6% and the last rate hike was seen in August 2017.

According to a senior State Bank of India (SBI) official, the bank is likely to take a call on rate hike by end of this month.

“The cost of funds has gone up. We have a monthly meeting on the interest rate reviews. So it’s likely that both loan rates and deposit rates will go up,” the official told DH on condition of anonymity.

The interest rate for bank customers is a function of bank rate set by the apex bank and liquidity existing in the system.

Sankara Narayanan, MD and CEO of Bengaluru-based Vijaya Bank said that they are expecting a rise in the deposit rates. “It would benefit consumers,” he said.

On Friday, in anticipation of either a rate hike or a change in stance by the RBI, three major banks such as SBI, PNB and ICICI Bank increased their benchmark lending rates.

First repo rate hike in 4 yrs

RBI on Wednesday hiked the key rate for the first time in over four years — by 0.25% — to curb inflationary pressures from high oil prices. With all its members voting for the increasing, the sixmember Monetary Policy Committee (MPC) surprised markets by raising the repo rate, at which it lends to other banks, to 6.25% but kept its policy stance as "neutral".