Reserve Bank of India Governor Shaktikanta Das makes a statement digitally.
Highlight
- RBI hikes benchmark lending rate to 4.40% to control inflation in a surprise move
- This is the first rate hike by RBI since August 2018.
- Commercial banks may soon increase interest rates on all types of retail and institutional loans
Home loan will be expensive: In a move that will increase the EMIs of home loans and all types of retail and institutional loans, the Reserve Bank of India on Wednesday raised the benchmark lending rate by 40 basis points to 4.40 per cent and cash reserve by 50 basis points to 4.5 per cent. , The decision was announced after an unscheduled meeting of the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das.
Das said all the six members of the MPC unanimously voted for an increase in rates to control inflation, which has exceeded the target of 6 per cent for the past three months. He said the increase in cash reserves will wipe out Rs 87,000 crore of liquidity from the banking system. The CRR hike will be effective from May 21.
Repo rate is the rate at which the central bank lends money to commercial banks whereas CRR is a fixed minimum amount that banks have to deposit with the central bank.
Das said the MPC’s decision reversed the May 2020 interest rate cut by an equal amount. The central bank last revised its policy repo rate or short-term lending rate on May 22, 2020, in an off-policy cycle to meet demand by cutting the interest rate to a historic low of 4 per cent.
RBI cited inflation concerns
According to Das, geopolitical tensions are driving inflation, adding that “the global economic recovery is losing momentum”. “Shortage, volatility in commodities and financial markets is becoming more intense,” he said.
This is the first rate hike since August 2018 and the first instance of an unscheduled hike in the repo rate by the MPC. The next meeting of the MPC is scheduled during June 6-8.
Ravi Singh, Vice President and Head of Research, ShareIndia, said, “Many central banks have already started tightening policy to curb inflation. Today’s rate hike is aimed at containing inflation and realigning inflation expectations is.”
“It is not too surprising that the RBI has increased the repo rate. Inflation has reached 6.95% and there is a possibility that the government will rein in liquidity. The silver lining is that the Indian economy is on a strong footing and most Agencies have predicted a promising growth rate in the range of 8-9% in the current financial year,” said Subhash Goyal, MD- Goyal Ganga Developments.
Notably, State Bank of India and HDFC have already increased their interest rates marginally. While SBI last month increased the marginal cost of lending rate (MCLR) on all types of retail and institutional loans by 10 basis points, the private lender increased the retail prime lending rate (RPLR) on home loans by 5 basis points. One basis point is equal to one hundredth of a percentage point.
real estate effect
Speaking about the impact of the RBI’s decision on the real estate sector, Rajat Goel, JMD, MRG World, said that the immediate effect would be an increase in home loan rates and input cost but “it will not make much difference as the strong growth witnessed in the last several months”. Resurrection”.
Nayan Raheja of Raheja Developers said, “This urgent step will be helpful in relieving inflationary challenges. It cannot be denied that there will be an increase in property prices, but it will soon be balanced as the market strengthens and is flexible.”
Group CFO Vikas Wadhawan said, “This hike will check inflation and strengthen the country’s growth-oriented objectives. The real estate industry is well positioned to manage any hike and is fairly articulate to deal with tighter inflation.” Was really expecting.” Housing.com, PropTiger.com and Makaan.com said.
Read more: RBI hikes interest rate by 40 basis points to 4.40%, CRR to 4.50% in unscheduled policy review