- RBI raises benchmark debt by 4.40% to control inflation in a surprise move
- This is the first RBI rate hike since August 2018
- Commercial banks may soon raise interest rates on all types of retail and institutional loans
More expensive home loans: In a move to boost EMIs on home loans and all types of retail and institutional loans, the Reserve Bank of India on Wednesday raised the benchmark lending rate by 40 basis points to 4.40 per cent and the cash reserve by 50 basis points to 4.5 per cent. . The decision was announced after an unscheduled meeting of the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikant Das.
Das said all six members of the MPC had unanimously voted in favor of the price hike to keep inflation in check, which has remained steadily above the 6 per cent target for the past three months. He said the increase in cash reserves would result in liquidity of Rs 87,000 crore from the banking system. The CRR increase will take effect from May 21.
The repo rate is the rate at which the central bank lends money to commercial banks while the CRR is the minimum amount that banks have to deposit with the central bank as a reserve.
Das said the MPC decision reduced interest rates by an equal amount in May 2020. The central bank last revised its policy repo rate, or short-term lending rate, on May 22, 2020, to boost demand by lowering interest rates to a historic low of 4 percent in an off-policy cycle.
The RBI has raised concerns about inflation
According to Das, those geopolitical tensions are pushing up inflation, adding that “global economic recovery is slowing down.” “Shortages, commodities and instability in financial markets are intensifying,” he said.
This is the first rate increase since August 2018 and the first instance of an unspecified increase in the MPC repo rate. The next meeting of the MPC is scheduled for June 6-8.
“Several central banks have already begun tightening policy to control inflation. Today’s rate hikes are aimed at capturing inflation and restoring inflation expectations,” said Ravi Singh, vice president and head of research at Share India.
“It is not surprising that the RBI has raised the repo rate. Inflation has reached 6.95% and the government is likely to rein in liquidity. “Subhash Goel, MD – Goel Ganga Developments,” said the forecast.
Significantly, State Bank of India and HDFC have already raised their interest rates slightly. While the SBI last month raised the marginal spending rate (MCLR) of all types of retail and institutional loans by 10 basis points, the private lender raised the retail prime lending rate (RPLR) of housing loans by 5 basis points. One base point is equal to one hundred percent.
The effects of real estate
Talking about the impact of the RBI’s decision on the real estate sector, MRG World’s JMD Rajat Goel said the immediate effect would be an increase in home loan rates and input costs but “it won’t make much of a difference because of the strong recovery seen over the last few months.”
“This urgent move will help alleviate the inflation challenges. There is no denying that property prices will rise but it will soon be balanced because the market is strong and resilient,” said Nayan Raheja, Raheja Developers.
“Growth will control inflation and strengthen the country’s growth-oriented objectives. The real estate industry is well on its way to managing any growth and has been quite open about tackling tougher inflation,” said Bikash Wadhawan, Group CFO, Housing.com, Propto. Makan.com, Dr.
Read more: RBI raises interest rates by 40 basis points to 4.40%, raises CRR to 4.50% in unspecified policy review
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