Loans set to get more expensive as RBI hikes repo rate again

Continuing its aggressive stance on high retail price inflation, the Reserve Bank of India (RBI) on Friday raised the bank interest rate by 50 basis points, which could be passed on to consumers of all related external loans. benchmarks, including home and consumer loans. loans. A 50 basis point increase in the RBI rate is equivalent to an additional interest charge of 0.5%.

Although the central bank intends to control soaring inflation and defend the weaker rupiah with this rate hike, there are serious concerns that it could hurt the sentiments of retail loan seekers as well. The latest interest rate revision announced by the RBI after Friday’s Monetary Policy Committee (MPC) meeting was the third consecutive increase since May.

Experts believe the central bank will pursue the same approach at the next MPC meeting in September, and likely for the rest of the calendar year as well.

“The RBI has clearly taken an aggressive stance on inflation even though there is no change in inflation and growth forecasts. The confidence in growth gives it a strong justification to tackle massively inflation,” said Madan Sabnavis, Chief Economist, Bank of Baroda.

There could be another 50 basis points rise in the year in this situation, as inflation over the next two quarters is expected to remain above 6%, he added. The central bank forecasts annual retail price inflation of 6.7%. He expects inflation based on the consumer price index in the second quarter of the current fiscal year to be 7.1% and 6.4% in the October-December quarter.

HDFC Bank Chief Economist Abheek Barua said the RBI today made a playbook policy announcement, one that is forward looking and aggressive in response to inflation that remains high as the momentum of growth remains reasonably positive. He too expects the RBI to continue its rate hikes in upcoming policies, taking the interest rate to 5.75% by the end of the year.

“The rally in the bond market seen in recent days is likely to reverse and we expect the 10-year paper to trade closer to 7.37.4% by the end of the quarter, as the markets are pricing RBI stock and the supply of both SDLs (state development loans) and central government bonds this year,” Barua said.

Rajni Thakur, chief economist at RBL Bank, said markets had broadly priced in a 50 basis point hike in the repo rate and any forward guidance would have mattered more than the rate action itself. She was also of the view that, given the outlook for growth and inflation, further hikes towards a terminal repo rate of 6% appear imminent, although the pace of the increase may be slower.

“Next” focus on withdrawal [of accommodation]’ also indicates a further reduction in excess liquidity, in which case monetary tightening is far from over,” Thakur said.

RBI Governor Shaktikanta Das while announcing the credit policy said the MPC should stick to its stance of withdrawing accommodative measures to ensure inflation moves closer to the 4% target over the medium term , while supporting growth.

Dhruv Agarwala, Group CEO,, said the new repo rate will ultimately impact the cost of borrowing for home buyers in India. However, it is also relevant to note that past rate hikes and the subsequent increase in mortgage rates have so far had no discernible negative impact on housing demand, he said. “We believe the positive buyer sentiment, coupled with renewed investor interest in residential real estate, will cushion some of the negative impact of rising rates,” he added.

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