Loans May Get Costlier as RBI Raises Repo Rate to 6.25%, Reverse Repo Rate to 6% After 4 Years

FILE PHOTO: A man checks his phone outside the Reserve Bank of India (RBI) headquarters in Mumbai, India April 5, 2018. REUTERS/Francis Mascarenhas/File Photo

New Delhi: The Reserve Bank of India (RBI) on Wednesday raised the repo rate to 25 basis points to 6.25 percent from the earlier 6 percent in the June bi-monthly policy meet on Wednesday. The reverese repo rate has been raised to 6 percent from the earlier 5.75 percent, raising the key rate by 25 basis points.

“The decision of the Monetary Policy Committee (MPC) is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth,” the RBI had said in its April statement.

The Reserve Bank of India (RBI) in its first bi-monthly monetary policy meeting in April had kept the interest rates unchanged at six percent, however, according to experts the central bank’s outlook towards the economy seems to have changed.

A hike in the rates will increase the lending rates by the banks to maintain their profit margins, adding pressure on the common man to pay up more money on loans, pinching the politically important middle class and weakening the already lagging investment climate in the country.
India’s top three banks in terms of lending, State Bank of India, ICICI Bank and Punjab National Bank have increased their marginal cost of lending rates (MCLR) by 10 basis points, with effect from June 1, 2018, ahead of the RBI policy meeting.

This may further go up, depending on the decision taken by the Monetary Policy Committee (MPC) on Wednesday.

The hike, if any on June 6, will be coming after a gaps of four-and-a-half years.

It will certainly have some impact on the quality of some of the more aggressive loans lent by non-bank finance companies in the past year.

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