January 28, 2014, MUMBAI: The Reserve Bank of India on Tuesday increased policy rates by 25 basis points that could lead to some banks to increase interest rates on Home Loans.
This surprise move is believed to bring in an increase in Home Loan EMIs. Although, no bank has announced a rise in interest rates yet. SBI and HDFC, India’s largest lenders, precluded any immediate increase. The decision made by RBI will raise the cost for those banks that depends on money markets for funds and may force them to increase rates to maintain margins.
The policy rate hike came even after the lower inflation rate in December. India’s retail inflation rate grew at a three months low rate of 9.87 percent and the wholesale expansion rate came to a five-month low of 6.16 percent.
Chanda Kochhar, Managing Director, ICICI Bank claimed, “You should watch the trend in inflation and in deposits, which impact our cost of funds and, therefore, lending rates. So, you cannot say something very quickly till we see what we need to do to the deposit rates as well”.
The strategy attracted sharp reactions from business tycoons who have been expecting a reduction in interest rates, arguing that costly borrowing and high cost of raw materials have crimped the expansion and hiring plans.
Siddhartha Birla, President of Industry Body FICCI, added, “At this juncture, we need policy support from all directions to get the industrial sector back on track. We hope growth and employment considerations merit greater attention in RBI’s policy decisions in the coming months”.
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