With record repo rate hike, RBI signals end of era of cheap lending

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Express press service

NEW DELHI: Lending is all set to get more expensive, with the Reserve Bank of India on Friday raising the repo rate (at which it lends money to commercial banks) by 0.5% to 5.4% with immediate effect.

Home and auto loans, which are linked to repo rates, will immediately feel the pinch as the transmission of RBI rate action is instantaneous in such cases.

Interest rates are already around 7.55% for borrowers with high credit scores. With the latest increase, it could exceed 8%.

This will be a substantial increase considering that at the start of the year mortgage rates were only 6.65%.

ICICI Bank and Punjab National Bank have already hiked lending rates after the central bank raised the benchmark interest rate on Friday.

Y Viswanatha Gowd, MD and CEO of LIC Housing Finance, said rising repo rates will cause some fluctuation in EMIs or mortgage tenors, but housing demand is expected to remain robust. A calculation on the back of the envelope shows that the EMI on a loan of Rs 50 lakh with a tenor of 20 years will increase by Rs 1,518.

On the positive side, those with term deposits in banks will gain as their rates will also rise, albeit slowly.

Currently, one-year fixed deposit rates range from 5.6% to 6.3%. RBI has so far raised the repo rate by a total of 1.4% since May.

With the latest hike, he completely reversed the Covid-era cuts. The current repo rate at 5.25% is higher than the pre-Covid level of 5.15%.

Justifying the hike, RBI Governor Shaktikanta Das said the regulator was being forced to act as inflation remained at “unacceptable levels”. RBI maintained its inflation outlook for the current financial year at 6.7%, while the regulator is mandated to keep it below 6%.

Das said India’s economy was improving, thanks to a recovery in urban demand. RBI pegged GDP growth for FY23 at 7.2%.

Banks can’t rely on RBI money forever: Das

RBI Governor Shaktikanta Das said on Friday that banks could not “constantly” rely on central bank money to support credit drawdown and needed to mobilize more deposits to spur growth credit.

NEW DELHI: Lending is all set to get more expensive, with the Reserve Bank of India on Friday raising the repo rate (at which it lends money to commercial banks) by 0.5% to 5.4% with immediate effect. Home and auto loans, which are linked to repo rates, will immediately feel the pinch as the transmission of RBI rate action is instantaneous in such cases. Interest rates are already around 7.55% for borrowers with high credit scores. With the latest increase, it could exceed 8%. This will be a substantial increase considering that at the start of the year mortgage rates were only 6.65%. ICICI Bank and Punjab National Bank have already hiked lending rates after the central bank raised the benchmark interest rate on Friday. Y Viswanatha Gowd, MD and CEO of LIC Housing Finance, said rising repo rates will cause some fluctuation in EMIs or mortgage tenors, but housing demand is expected to remain robust. A calculation on the back of the envelope shows that the EMI on a loan of Rs 50 lakh with a tenor of 20 years will increase by Rs 1,518. will also increase, albeit slowly. Currently, one-year fixed deposit rates range from 5.6% to 6.3%. RBI has so far raised the repo rate by a total of 1.4% since May. With the latest hike, he completely reversed the Covid-era cuts. The current repo rate at 5.25% is higher than the pre-Covid level of 5.15%. Justifying the hike, RBI Governor Shaktikanta Das said the regulator was being forced to act as inflation remained at “unacceptable levels”. RBI maintained its inflation outlook for the current financial year at 6.7%, while the regulator is mandated to keep it below 6%. Das said India’s economy was improving, thanks to a recovery in urban demand. RBI pegged GDP growth for FY23 at 7.2%. Banks cannot rely on RBI money forever: Das RBI Governor Shaktikanta Das said on Friday that banks cannot rely on central bank money ‘eternally’ to support the levy and that they needed to mobilize more deposits to promote credit growth.

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