RBI hikes repo rate, EMIs and home loans may get costlier

RBI hikes repo rate, EMIs and home loans may get costlier”

The Reserve Bank of India's (RBI's) Monetary Policy Committee (MPC), headed by governor Urjit Patel, hiked the policy repo rate by 25 basis points (bps) to 6.50 per cent after the conclusion of the third bi-monthly policy meet on Wednesday.

The move will make the home loans dearer and will have direct impact on the borrowers as the rate hike will lead to banks raising their interest rates in loans.

Reverse repo rate - the rate at which the RBI borrows money from commercial banks - was also hiked to by 25 basis points to 6.25 per cent. SBI, PNB, ICICI Bank last raised their lending rates up to 10 basis points (0.10 per cent) effective June 1, 2018.

The repo rate has been hiked from 6.25 per cent to 6.5 per cent. All kinds of loans whether it is personal, auto or mortgage will be impacted by this hike. This is the first time since October 2013 that the rate has been increased in consecutive policy meetings.

Five of the six members on the rate panel voted for a rate increase, Reuters reported.

In the subsequent years, RBI cut the interest rate on six occasions. The government has dictated RBI to keep inflation around 4 per cent. For the July-September quarter, RBI pegged CPI-based retail inflation at 4.2 per cent which it sees firming up further to 4.8 per cent in the second half of the current fiscal.

Though the monetary policy statement noted that inflation projections for the second quarter have been revised marginally downwards compared to the June statement, several risk factors persist, including volatile crude oil prices and global financial markets, as well as concerns of fiscal slippage by the Centre or States.

India's annual consumer inflation hit 5 per cent in June, the eighth straight month it topped the RBI's medium-term 4 per cent target.

The RBI will continue to actively manage the system liquidity to achieve the monetary policy objective of aligning the overnight weighted average call rate with the policy rate, he said, while meeting the economy's demand for reserve money growth.

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