RBI signals end of cheap credit era with record repo rate hike – The New Indian Express

Express Message Service

NEW DELHI: Borrowing is expected to become more expensive as the Reserve Bank of India hiked the repo rate (at which it lends money to commercial banks) by 0.5% to 5.4% effective immediately on Friday.

Home and car loans pegged to repo rates will feel the pinch immediately as the RBI interest rate action carry over is immediate in such cases.

Interest rates are already around 7.55% for borrowers with good credit ratings. With the latest raise, it could go past 8%.

That will be a significant increase considering that home loan rates were just 6.65% at the start of the year.

ICICI Bank and Punjab National Bank have already hiked lending rates after the central bank hiked the benchmark interest rate on Friday.

Y Viswanatha Gowd, MD and CEO of LIC Housing Finance said that while the repo rate hike will cause some volatility in EMIs or home loan tenors, housing demand is likely to remain resilient. A back cover calculation shows that the EMI will increase by Rs 1,518 for a Rs 50 lakh loan with a 20 year maturity.

On the plus side, those with bank deposits will benefit as their interest rates will also rise, albeit slowly.

Fixed-term deposit interest rates with a one-year term are currently between 5.6% and 6.3%. The RBI has hiked the repo rate by a total of 1.4% since May so far.

With the latest increase, it has completely reversed the cuts from the Covid era. The current repo rate of 5.25% is higher than the pre-Covid level of 5.15%.

RBI Governor Shakkanta Das justified the hike, saying the regulator was being forced to act as inflation remained at “unacceptably high levels”. The RBI kept its inflation outlook for the current year at 6.7%, while the regulator is mandated to keep it below 6%.

Das said India’s economy is improving thanks to a revival in urban demand. RBI has put FY23 GDP growth at 7.2%.

Banks can’t rely on RBI money forever: That

RBI Governor Shaktikanta Das said on Friday that banks cannot “permanently” rely on central bank money to support borrowing and that they need to mobilize more deposits to support credit growth.

NEW DELHI: Borrowing is expected to become more expensive as the Reserve Bank of India hiked the repo rate (at which it lends money to commercial banks) by 0.5% to 5.4% effective immediately on Friday. Home and car loans pegged to repo rates will feel the pinch immediately as the RBI interest rate action carry over is immediate in such cases. Interest rates are already around 7.55% for borrowers with good credit ratings. With the latest raise, it could go past 8%. That will be a significant increase considering that home loan rates were just 6.65% at the start of the year. ICICI Bank and Punjab National Bank have already hiked lending rates after the central bank hiked the benchmark interest rate on Friday. Y Viswanatha Gowd, MD and CEO of LIC Housing Finance said that while the repo rate hike will cause some volatility in EMIs or home loan tenors, housing demand is likely to remain resilient. A back cover calculation shows that the EMI will increase by Rs 1,518 for a Rs 50 lakh loan with a 20 year maturity. On the plus side, those with bank deposits will benefit as their interest rates will also rise, albeit slowly. Fixed-term deposit interest rates with a one-year term are currently between 5.6% and 6.3%. The RBI has hiked the repo rate by a total of 1.4% since May so far. With the latest increase, it has completely reversed the cuts from the Covid era. The current repo rate of 5.25% is higher than the pre-Covid level of 5.15%. RBI Governor Shakkanta Das justified the hike, saying the regulator was being forced to act as inflation remained at “unacceptably high levels”. The RBI kept its inflation outlook for the current year at 6.7%, while the regulator is mandated to keep it below 6%. Das said India’s economy is improving thanks to a revival in urban demand. RBI has put FY23 GDP growth at 7.2%. Banks can’t rely on RBI money forever: RBI Gov. Shakkanta Das said on Friday that banks cannot “permanently” rely on central bank money to support borrowing and that they are taking more deposits mobilize to support credit growth.

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