Money & Banking

Rate hike: ‘Home, auto loans to cost more’

PTI Mumbai | Updated on March 17, 2011

Home, auto and corporate loans are likely to become expensive in the next fiscal following the Reserve Bank of India’s move to raise key policy rates by 25 basis points, bankers said today.

“The rate hike is on expected lines and the direction which the policy gives is towards more hardening,” the Bank of Baroda Chairman and Managing Director, Mr M.D. Mallya, told PTI.

The Indian Overseas Bank Chairman and Managing Director, Mr M. Narendra, said the RBI monetary tightening action is not going to translate into interest rate revision immediately.

“I think rates would remain stable during this month. Beyond March, it would depend on various factors like call money rates etc,” he said.

The RBI today hiked its key short-term lending and borrowing rates by 25 basis points (0.25 per cent) each with immediate effect to tackle inflation. This is the eighth time since March 2010 that the central bank has raised key policy rates to tame inflation.

The short-term lending (repo) rate now stands at 6.75 per cent and the borrowing (reverse repo) rate at 5.75 per cent.

Commenting on the policy action, the United Bank of India Chairman and Managing Director, Mr Bhaskar Sen, said: “There is a possibility (hike in interest rates) definitely. It will increase our funding cost also.”

It is on expected lines and the 25 basis points hike was factored in by the market, Mr Sen added.

The HDFC Bank head treasurer, Mr Ashish Parthasarthy, said there was “almost a consensus” about such an action and the market had factored in such a hike.

Conforming to above views, the Union Bank of India Executive Director, Mr S.C. Kalia, said the hike was on expected lines.

Policy signal is clear but it may not result in rate hike before March-end, Mr Kalia said.

Echoing the view, the Punjab & Sind Bank Executive Director, Mr P.K. Anand, said till March 31 banks are unlikely to tinker with their rates.

Revision in rates by banks would happen in April when the new fiscal year begins.

The Yes Bank Chief Financial Officer, Mr Rajat Monga, said the deposit rates — that react first — offered by banks are already very high and should not see a spike in the near future.

However, there is “pent-up” pressure of the lending rates and the banks will upwardly revise them starting April with reviews of the base rate, he added.

The Bank of Baroda Chief Economist, Ms Rupa Rege-Nitsure, said the central bank has taken a “hawkish” stance and added that there will be more tightening in the next year.

A lot should be read into the avoidance of the word ‘calibrated rate hikes’ by the RBI in its policy announcement, she added.

Published on March 17, 2011

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