RBI hiked short-term lending rates

The Reserve Bank of India (RBI) today announced a hike in its short-term lending rate to banks by 0.25 per cent to 8 per cent in the face of rising inflation. Due to hike in repo rate consumer, home, auto and other loans can become costlier.

The central bank said the decision of increasing short-term lending rates from 7.75 per cent to 8 per cent was taken to control inflationary expectations as the rate of rise in prices touched a 45- month high of 8.24 per cent.

Analysts are a view of the inflation, is expected to move up over nine per cent once hike in petroleum prices gets reflected in the official wholesale price index.

In this fiscal the decision to increase repo rate, at which the central bank gives short term money to banks in exchange of government securities, has been taken for first time.

Earlier RBI had tried to control inflation by raising cash reserve ratio-- the mandatory deposits that banks keep with RBI.

Commenting on RBI decision Punjab National Bank Chairman K C Chakrabarty said, "All interest rates would be affected. We will take decision by month end. It (the move) will increase the cost of resources."

Country's largest lender SBI sources said in view of increase in the repo rates by RBI, it will be examining lending and deposit rates on Friday.

Real Estate Company Unitech said home loan rates might rise after the Reserve Bank's step.

However the reverse repo rate, at which RBI borrows money from banks in exchange of the government papers, remained untouched at six per cent.

HDFC Bank Chief Economist Abheek Barua said," This (repo rate hike) will have an implication on the bank's lending rates. I think the Prime Lending Rates of the banks will go up by about 50 basis points. There would also be a revision of bank's deposit rates."