The RBI has pulled the gauntlet with yet another 25 basis points hike in repo and reverse repo rates to 8.5% and 7.5% respectively. As a matter of practice, reverse repo rate is usually determined with a spread of 100 basis points below the policy repo rate. CRR remains unchanged at 6%.
If you’re burdened by those monthly EMIs on your expensive home loans, something that should irk you is that the country’s apex banker has raised its benchmark lending rates for 13 times (or 375 bps) since mid March 2010 without much respite to the borrowers.
The key repo and reverse repo rates stood at a subdued 5% and 3.5% respectively, until the first half of March 2010. In its latest policy stance, RBI has conceded that even with all the interest rate hikes in last 18 months, inflation has persistently remained stubborn even with visible moderation in growth.
RBI’s softening stance!
However, a silver linking in the cloud being that the RBI has hinted at a reversal in policy stance by saying the likelihood of a hike in December is ‘relatively low’, given the need to balance concerns about persistent inflation and moderating growth. The RBI notification clearly stated that “growth risks are undoubtedly significant in the current scenario.”
In addition, RBI expects inflationary pressures to subside in December and continue on that trajectory into 2012-13, based on normal south-west monsoon and first advance estimates that suggest a record kharif production.
RBI’s FY12 Growth Outlook!
Moreover, RBI has downwardly revised GDP growth projections for fiscal 2011-12 to 7.6% on account of slackened investment demand, stalled project execution, downward risks emanating from shaky global economics and concerns about inflation and rising interest rates eating into demand for assets fuelled by borrowed money.
Deregulation of Savings Bank Deposit Rates!
The RBI has also decided to deregulate Savings Bank Deposit interest rates with immediate effect. Under the new regulation, banks will be set free to determine their savings bank deposit interest rate for deposits of over Rs.1 lakh.
However, RBI also notified a condition saying that
“each bank will have to offer a uniform interest rate on saving banks deposits up to Rs.1 lakh, irrespective of the amount in the account within this limit.”
Anyways, I hope this interest rate hike is a last one, and hopefully inflation is tamed.
What do you think ?