RBI raises policy rates; home, auto loans may cost more

Home and auto loans may cost more as the RBI raised its short-term lending and borrowing rates by 25 basis points each yet again today with a view to check spiralling prices of essential commodities.

This is the eighth time since March 2010 the RBI has resorted to policy rate hike to tackle inflation, which is ruling above 8%, much above the comfort level of 5-6%.

In view of the rising fuel prices, following unrest in the middle-East and high food prices in the domestic market, the RBI has upped its March end inflation forecast to 8% from 7% projected earlier.

The short-term lending (repo) rate has been hiked to 6.75% and the short-term borrowing (reverse repo) rate to 5.75% with immediate effect. While the RBI injects liquidity through repo rate, it absorbs funds through reverse repo window.

As regards the impact of monetary action on interest rates, Indian Overseas Bank (IOB) Chairman and Managing Director M Narendra said the RBI measures may not lead to immediate hike in interest rates.

"I think rates would remain stable during this month. Beyond March it would depend on various factors like money market, call money rate etc," he said.
The initiatives, RBI said, are expected to rein in demand-side inflationary pressures and contain the spillover of food and commodity price rise to other sectors.

It further said that the RBI would "persist with the current anti-inflationary stance". The overall inflation was at 8.31% in February this year compared to 8.23% a month ago. .