Cough up more to pay EMIs

RBI raises key policy rates for the 10th time in the last 15 months

In effect, the RBI, reviewing its mid-quarter credit policy, hiked its repo rate (at which it lends to banks) to 7.5 per cent from 7.25 per cent with immediate effect, while the reverse repo rate (at which the Central bank absorbs excess cash from the system) has gone up from 6.25 to 6.5 per cent.

With this, the Central bank has hiked the policy rates for the 10th time since March 2010 and during this period the key repo rate has gone up by 425 points from 3.25 to 7.5 per cent.

This policy initiative “is expected to contain inflation and anchor inflationary expectations by reining in demand side pressures,”  RBI said, adding that these measures would also help in mitigating the impact of “potentially adverse global developments.”

The hike will leave banks wi­th no choice but to pass on the additional cost to consumers, as ICICI Bank Managing Director Chanda Kochhar said.

Union Bank of India Chairman M V Nair said: “The RBI’s steps are on expected lines as inflation still remains stubborn and poses a serious threat to growth.” He said his bank will pass on the rate increase to customers. RBI Governor D Subbarao gave enough hints that if needed rates will be hiked again and this led to a crash in stock prices. The BSE Sensex closed below 18,000 mark at 17,985 losing 146 points.

However, the good news for investors is that banks may raise the rate of interest on term deposits.

Since retail lending rates normally tend to follow the key policy rates, consumers will have to fork out a higher EMI on their home loans. Besides auto, personal loans and education loans will also cost more. In this regard, a banker said that interest on home loans had gone up by at least 3 per cent, from 8 per cent to above 11 per cent in the last two years.

The RBI in its mid-quarter re­view of credit policy on Th­ursday stated that inflation of non-food manufactured produ­cts stood at 8.5 per cent in March. It increased from 6.3 per cent in April to 7.3 per cent in May, 2011. The RBI maintained GDP growth projection for 2011-12 at around 8 per cent.