Home, auto loans to become costlier as RBI hikes key rates

Mumbai, June 16: Be prepared to pay more every month on your home, auto and other loans, as the Reserve Bank today (June 16), for the 10th time since March, 2010, raised key interest rates by 25 basis points in its effort to control spiralling inflation.

The RBI has raised the short-term lending (repo) rate by 25 basis points to 7.50 per cent and the short-term borrowing (reverse repo) rate will move up by a similar margin to 6.5 per cent. It kept other rates and ratios unchanged.

The mid-quarterly policy initiatives, the RBI said, are expected to contain inflation, which is currently over 9 per cent, much above the comfort level of the central bank.

"The RBI has sought to maintain an interest rate environment that moderates inflation and checks inflationary expectations," the Finance Ministry said in a statement, adding that this was on expected lines.

"We need to have price stability for sustaining growth in the medium term," it added.

Bankers said the move would put pressure on interest rates and may make loans costlier subsequently.

"It (RBI's move) will put pressure on short-term deposit rates and subsequently on the lending rates. But rate hike by banks would not be immediate," Indian Overseas Bank CMD M Narendra told PTI.

While announcing the measures, the RBI said that tightening of the monetary policy would impact economic growth, which is already under pressure, in the short term.

PTI