The Reserve Bank of India’s decision to raise key rates for the third time in the current fiscal would make home, auto and corporate loans expensive by up to 50 basis points, burning another hole in the pocket of the consumer already burdened with high inflation.

“The hike is more than expected and it will push interest rates (lending and deposits) by up to 50 basis points,” the Oriental Bank of Commerce Executive Director, Mr S.C. Sinha, told PTI.

Within an hour of the monetary action by RBI, private sector YES Bank raised the base rate or minimum lending rate by 50 basis points.

The RBI has raised the short-term lending (repo) rate by 50 basis points to 8 per cent and the short-term borrowing (reverse repo) rate by a similar margin to 7 per cent.

Subsequently, the interest rate under the Marginal Standing Facility, an additional borrowing window, has gone up to 9 per cent from the earlier level of 8.5 per cent.

This is the 11th time since March 2010 that the RBI has raised the interest rate to check inflation, which is currently ruling at over 9 per cent.

The central bank’s action is in a direction which creates persistent pressure on credit demand. ALCO (Asset Liability Committee) needs to review on the transmission mechanism and timing, said the Bank of Baroda Executive Director, Mr R.K. Bakshi.

The rate hike by the RBI will definitely slowdown credit demand, he added.

According to Indian Overseas Bank Executive Director, Mr A.K. Bansal, sooner than later, both lending and deposit rates will go up.

Banks would take a call on interest rates in their respective ALCO in the next few days, he said.

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