Loans get costlier as RBI hikes key rates by 50 basis points
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Home buyers in for trouble as RBI hikes key rates yet again

Loans are set to get costlier as the Reserve Bank of India hikes the short-term lending and borrowing rates sharply by 50 basis points for the third time in three months to tame high inflation.

  • Mumbai,  July 26, 2011  
  • |  
  • UPDATED   12:48 IST

Personal and corporate loans are set to become more expensive as the Reserve Bank of India on Tuesday hiked the short-term lending and borrowing rates sharply by 50 basis points for the third time in three months to tame high inflation.

The RBI has also revised its fiscal-end inflation projection to 7 per cent from 6 per cent earlier.

With Tuesday's increase of 0.50 per cent, the short-term lending (repo) rate has been hiked to 8 per cent and the short-term borrowing (reverse repo) rate has also been increased by a similar margin to 7 per cent.

All loans, including auto, home, personal and other corporate borrowings, are expected to cost more following the RBI's decision.

Read how you can deal with rising interest rates and still get that loan

It, however, has retained the cash reserve ratio (CRR) at 6 per cent.

"Notwithstanding signs of moderation, inflationary pressures are clearly very strong... inflation continues to be the dominant macroeconomic concern. On the basis of this assessment, it has been decided to increase policy repo rate by 50 basis points from 7.5 to 8 per cent with immediate effect," RBI Governor D Subbarao said while announcing the quarterly review of the monetary policy.

Inflation, currently hovering above 9 per cent, he said, would continue to guide the policy stance in future.

READ:Rate hike alone cannot battle inflation, says KV Kamath

This is the 11th time since March, 2010, that the RBI has raised the interest rate to check inflation, which is currently ruling at over 9 per cent.

The RBI's unexpected decision led to a sharp decline of over 300 points in the BSE Sensex. The 30-share Sensex fell to 18,570 after announcement of the policy, although it had opened in positive terrain.

The RBI has been aggressive in tightening monetary policy since the last year and has stepped up its fight against stubbornly high inflation since May, raising interest rates by a bigger-than-expected 50 basis points.

Since the last year, the RBI has raised the repo rate by a total of 275 basis points to 7.50 per cent.

The RBI's next review is scheduled on September 16.

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With PTI inputs