Another policy rate hike by RBI
By Joseph Samson
Jul 28, 2010
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The monetary policy review of Reserve Bank of India on 27th July (Tuesday) brought yet another step up to the policy rates.The repo rate has experienced a 25 basis points hike while the reverse repo rate has been raised by 50 basis points.

Repo refers to the rate at which banks borrow funds from RBI while reverse repo is the rate at which banks park their surplus funds with RBI.

According to bankers, the rate hike would first show its impact in fixed deposit rates which would likely rise by the same amount or slightly more than that.

However, experts project that home, auto and personal loan rates are unlikely to take a rise till September mid quarter review.

Renu Sud Karnad, managing director of HDFC Ltd, said that if policy rates are further hiked at that point, then the loan rates would see a rise. "But one more round of policy rate hikes by the RBI could see lenders increase their interest rates," Karnad said.

"Every bank is going to absorb what has happened today," said SBI chairman O P Bhatt.

"Yes (deposit rates) are headed upwards. The RBI has indicated it will make sure the liquidity remains just adequate - that would put upward pressure on rates," said KVS Manian, group head (consumer banking), Kotak Mahindra Bank.

Pujit Agarwal, managing director, Orbit Corporation, the south Mumbai builder, said demand is extremely robust in the residential segment. "Pricing is a factor of demand and supply. Places where there is excess supply, some adjustments will take place. The RBI is keeping a hawkish eye. With further interest rate hike, real estate prices will not go up for sometime at least, and if prices go up after this, then absorption will drop sharply."


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