At least two lenders, Bank of Baroda and ICICI Bank, increased their lending rates on May 5, a day after the Reserve Bank of India (RBI) governor announced the rate-setting panel’s decision to raise the key lending rate in an off-cycle move.
ICICI Bank raised its external benchmark lending rate by 40 bps to 8.10 percent. Bank of Baroda also hikes the repo-linked lending rate by 40 bps to 6.90 percent.
The monetary policy committee (MPC) on May 4 raised lending rates by 40 basis points to 4.40 percent and also hiked the cash reserve ratio by 50 basis points. The decision was taken by the MPC during an off-cycle meeting with the central board held May 2-4.
“The decision to raise repo rate may be seen as a reversal of rate action of May 2020. Last month, we set out a stance of withdrawal of accommodation. Today's action needs to be seen in line with that action,” RBI governor, Shaktikanta Das said in his statement.
Other banks are likely to follow suit and push up their lending rates in the approaching days, analysts said. "Yes, all the banks would increase their rates," added Yuvraj Chaudhury, a financial analyst from Anand Rathi Securities.
While many banks are likely to raise their rates, many may also choose to keep it the same, according to many analysts. "Few banks may choose to hold a rate for new borrowers for the time being," said Soumyajit Niyogi.
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