Higher RBI rate to spike banks’ borrowing costs
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Sept. 16: Reserve Bank of India’s rate hikes will lead to higher borrowing and lending costs, but with a lag. Some analysts say that banks may increase lending rates only after the festive season.
The central bank hopes that the hikes will make loans more expensive and reduce consumption. RBI had identified inflation as the key concern in its statement as well.
The rating agency CARE expects deposit rates to move up by half a per cent and lending rates by quarter per cent. However, given that PF rates have been inc-reased by 100 basis points on Wednesday deposit rates have to be significant to draw in funds. The policy has tried to address this, said Care chief economist, Mr Madan Sabnavis.
Another piece of good news is that there could be no major hike in the second half as Mr Sujan Hajra, chief economist, Anand Rathi Financial Service points out. He said that though the tightening in policy rates was more than expected, it indicates that this tightening is leading towards normalisation of interest rates to the pre-crisis low.
HDFC Bank’s chief economist, Mr Abheek Barua, also feels that RBI’s policy signals that there could be “one last rate hike (25 bps each in the repo and reverse repo) in its November review before its monetary tightening cycle draws to a pause.” However, were inflation to surprise to the upside possibly on the back of a turnaround in global stability and higher commodity prices the last rate increase could come later in January, 2011, he says.
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