New Delhi: Home, auto and loans to corporate may become costlier as RBI today hiked short-term lending and borrowing rates by 0.25 per cent each, though bankers felt there may not be an immediate increase in interest rates.
These initiatives (hike in rates) are aimed at checking price rise while retaining the growth momentum, RBI said while raising the year-end inflation projection to 7 per cent and retaining the economic growth forecast for the fiscal at 8.5 per cent.
The short-term lending (repo) rate has been increased to 6.5 per cent while the borrowing (reverse repo) rate has gone up to 5.5 per cent. The Reserve Bank of India (RBI) also extended the additional liquidity support facility to banks till April 8, 2011.
It has retained the Cash Reserve Ratio (CRR)-- a portion of deposits that banks are required to maintain in cash with the RBI-- at 6 per cent to ensure that the system had enough liquidity to meet loan requirements.
"The policy rate hikes will not result in immediate increase in lending and borrowing rates of banks as this has already been factored in by the market given high inflationary pressures," Oriental Bank of Commerce Executive Director S C Sinha said.
He, however, added that banks may have to increase the rates in case the credit off-take goes up.
The RBI will constantly monitor the credit growth and, if necessary, will take necessary steps, according to third quarter monetary policy review announced today.
The Reserve Bank projected an economic growth of 8.5 per cent with an upside bias.
It also warned that inflation is a matter of concern and revised its projection for FY 2011 to 7 per cent from 5.5 per cent earlier.
The central bank in 2010 raised the key policy rates six times to contain inflation which shot up to 8.43 per cent in December on high prices of food items, from 7.48 per cent in November.
While the food inflation for the week ended January 8 stood at 15.52 per cent. It had soared to 18.32 per cent in the end of December on high prices of vegetables, including onion.The policy measures, the RBI said, will "rein in rising inflationary expectations, which may be aggravated by the structural and transitory nature of food price increases."
It, however, asserted that the monetary action was aimed at taming rising inflationary expectations, while at the same time being moderate enough not to disrupt growth.
It also aims to contain the spill-over from rising food and fuel prices to generalised inflation and continue to provide comfort to banks' liquidity management operations, RBI said.
