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RBI may hike key rates, loans to get costlier?

CNN-IBN
Jul 26, 2011 at 07:36am IST

New Delhi: The Reserve Bank of India (RBI) might hike key interest rates at its policy review on Tuesday to tame inflation. The hike is likely to further dampen the demands for home and car loans which are already the lowest in recent months.

The RBI on Monday gave strong hints of another hike - the 10th in the last 15 months - saying that high inflation requires further monetary tightening, slowdown in growth notwithstanding. "The unfinished task of taming inflation warrants continuation of anti-inflationary monetary stance, (though) the downside risks to growth have increased," RBI said in its Macroeconomic and Monetary Developments Report released on the eve of the first quarter review of the credit policy on Tuesday.

The Reserve Bank of India (RBI) said it will have to continue the thrust on tight monetary stance till there is "clear evidence of inflation trending close to a level within RBI s comfort zone".

RBI may hike key rates, loans to get costlier?

The hike is likely to dampen further the demands for home and car loans.

The headline inflation stood at 9.44 per cent for June. The central bank has set an inflation target of 6 per cent for the fiscal-end.

During the past 15 months, the central bank has raised 10 times its key policy rates - repo or the short-term lending rate, and reverse repo at which it borrows from banks - by 425 basis points. The repo is at 7.50 per cent now while the reverse repo stands at 6.5 per cent.

Stating that the monsoon, global commodity prices and the Eurozone crisis have the potential to alter growth path and inflation level, RBI said, "A significant departure of monsoon from 'normal', a collapse of global commodity price bubble,and Eurozone debt crisis assuming full-blown proportion" can alter both growth as well as inflation forecasts.

With Additional Inputs from Agencies

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