India's central bank today raised interest rates for the second time in less than two months, raising the prospects of further increase in loan interest rates.
The Reserve Bank of India (RBI) today hiked the repo rates, or interest rates at which the country's central bank lends money to banks. A rise in these interest rates, generally pushes banks to hike their loans and deposit rates, though not always as cost of borrowing from the RBI increases.
While most economists and analysts remained divided on whether the RBI would hike rates, a vast majority had expected a rate hike, just like happened in the June meeting.
From the six committee members, as many as 5 voted for the rate hike.
The one reason that may have prompted the RBI to hike interest rates is the core inflation, which has been on a upsurge.
Quick features of the monetary policy:
- Repo rates raised to 6.5 per cent from 6.25
- Policy stance would remain "neutral".
- Second straight hike by the RBI, after the first one in June.
- GDP pegged at 7.4 per cent for 2018-19
- 5 out of 6 MPC members voted for a hike.
"Retail inflation, measured by the year-on-year change in the CPI, rose from 4.9 per cent in May to 5 per cent in June, driven by an uptick in inflation in fuel and in items other than food and fuel even as food inflation remained muted due to lower than usual seasonal uptick in prices of fruits and vegetables in summer months. Adjusting for the estimated impact of the 7th central pay commission's house rent allowances (HRA), headline inflation increased from 4.5 per cent in May to 4.6 per cent in June. Low inflation continued in cereals, meat, milk, oil, spices and non-alcoholic beverages, and pulses and sugar prices remained in deflation," the RBI said in a release
Today's hike in interest rates will make loans more costlier in the coming days. However, it could bring some relief to those who look for interest income as a means for survival.