In the continuous war against the inflation, the Reserve Bank of India (RBI) on Tuesday evening has surprisingly announced to hike the repo rate, the rate at which banks borrow from RBI and Cash Reserve Ratio (CRR), a ratio of customer deposits, banks set aside as cash with the apex bank, by 50 basis points in both terms.
The repo rate will go up to 8.50% from 8.0% with immediate effect, while CRR will be hiked in two stages: on July 5 it will go to 8.5% from current rate 8.25% and again on July 19, it further goes to 8.75%, as per RBI informed to the media.
Describing the reason of this drive, RBI governor Y V Reddy on Tuesday evening said, “In view of the criticality of anchoring inflation expectations, a continuous heightened vigil over ensuing monetary and macro-economic developments is warranted to enable swift responses with appropriate measures as are necessary, consistent with the monetary policy stance.”
This double blow would definitely hit the markets, banks and consumers as the interest rates on all sorts of loans may likely to go up and customers, banks and market will feel the cash crunch. The RBI’s move to hike the CRR by 0.50% would suck nearby Rs.20,000 without any interest while the repo rate hike would effect the short term debts.
It is also possible that this dual waft will lead the banks to hike the prime lending rate (PLR), the interest rate on long-term loans as some banks have indicated to hike PLR, which would translate the hike in home loans, auto loans and other long terms loans by 50 to 100 basis points.
‘The hike in all sort of loans would pinch, not even pinch but prove panic’, as per financial experts believe for the banks and the consumers, as banks will pass the hike rates to the customers to avoid bad impact on their margins, which would discourage the consumers to borrow, while customers will have to pay more for their debts.
According to banks, a 50 bps hike in home loans means Rs.35 increment per one lakh debt while in short terms loans, it would be much more. This double move of RBI has also lead the big public sectors banks to hike the interest rate in all sorts of debt as Punjab National Bank has indicated to hike the interest rate.
In the efforts of taming inflation, RBI is walking together with the government, but despite of their several efforts, inflation is continuously soaring towards new height and the latest WPI data has reported that inflation rate for the week ended on June 06 has broken the 13-years record and reached to 11.05%.
This record-breaking inflation is negating the banks’ term-end bond and fixed deposits bonds interest rate, which is ranged 8.50% to 10.50%.
‘For attracting the customers to deposit their money in the banks, the banks would have to hike the deposit interest rate’ as per banks estimates while on fixed deposits and term-end bonds, the interest rate would have to escalate to 12-13 percent.
|
|
Comments:
