Loans to get costlier as RBI hikes rates

New Delhi, Jun 08: Reserve Bank of India (RBI) on Wednesday raised the interest rate by 50 basis points to a two-year high of 4.9 per cent as it doubled down to tame inflation that has surged in the last couple of months.

The rate hike comes on the back of a 40 bps increase effected by RBI at an unscheduled meeting on May 4.

All the six members of the Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, unanimously voted for the latest rate hike.

Consumer Price Index (CPI) based inflation, which RBI factors in while arriving at its monetary policy, galloped for the seventh straight month to touch an 8-year high of 7.79 per cent in April.

With this announcement the loans are set to get costlier. Earlier this week leading private sector and government run lenders including the ICICI Bank, HDFC and Punjab National Bank hiked their lending rates making home, car and other loans costlier.

ICICI had hied lending rates by 0.30 per cent or 30 basis points across tenures. "The Exchange is hereby informed that Marginal Cost of Funds Based Lending Rate (MCLR) with effect from 01.06.2022 has been revised," the PNB had said in its regulatory filing to the stock exchange.

HDFC increased its retail prime lending rate by 5 basis points or 0.05 per cent effective June 1. "HDFC increases its retail prime lending rate (RPLR) on housing loans, on which its adjustable rate home loans (ARHL) are benchmarked, by 5 basis points, with effect from June 1, 2022," HDFC had said in a statement.

We are facing new challenges with every passing day due to the war. War in Europe is lingering, challenges accentuating supply chains. Recovery is gaining momentun despite the pandemic and war. On the other hand inflation has become global, RBI Governor Shaktikanta Das said.

The MPC voted unanimously to remain focused on the withdrawal of accommodation to ensure inflation remains within target going forward. The standing deposit facility and marginal standing facility rates were also raised by 50 basis points. The standing deposit facility rate is now at 4.65 per cent and the marginal standing facility rate at 5.15 per cent.

Das said that the war in Ukraine has led to globalisation of of inflation. The war is turning out to be a dampener on global trade and growth. Domestic economic activity is gaining traction while inflation pressures have intensified faster, he said. The inflationary pressures have become broad based and remain largely driven by supply shocks. The repo rate remains below its pre-pandemic level and inflation is likely to remain near upper tolerance of 6 per cent for the first three quarters of this year. Sustained high inflation could unhinge inflation expectations, Das added.

The Indian economy remains resilient and the RBI will remain supportive to growth, he also added. Our steps will be calibrated, focused on bringing down inflation to the target level, the RBI government further added.

He also said that the information for April-May suggests that the domestic economic recovery is firm. Urban demand is recovering, rural demanding is also improving. Surveys show capacity utilisation in manufacturing sector increased to 74.5 per cent in January-March.