Mumbai: Home, auto and corporate loans are likely to become expensive in the next fiscal following the RBI’s move to raise key policy rates by 25 basis points, bankers said Thursday.
“The rate hike is on expected lines and the direction which the policy gives is towards more hardening,” Bank of Baroda chairman and managing director M D Mallya told PTI.
Indian Overseas Bank chairman and managing director 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,” Narendra said.
The RBI today hiked its key short-term lending and borrowing rates by 25 basis points (0.25%) each with immediate effect to tackle inflation. This is the eighth time since March 2010 that RBI has raised key policy rates to tame inflation.
The short-term lending (repo) rate now stands at 6.75% and the borrowing (reverse repo) rate at 5.75%.
Commenting on policy action, United Bank of India chairman and managing director 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 hike basis point was factored in by market, Sen added.
HDFC Bank, head treasurer 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, Union Bank of India executive director S C Kalia said the hike was on expected line.
Policy signal is clear but it may not result in rate hike before March-end, Kalia said.
Echoing the view, Punjab & Sind Bank executive director P K Anand said till 31 March banks are unlikely to tinker with their rates.
Revision in rates by banks would happen in April when the new fiscal year begins.
Yes Bank’s chief financial officer 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.
Bank of Baroda’s chief economist 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.