On Wednesday, August 01, 2018, RBI raises REPO Rate second time in two months. For the first time in almost five years, the Central Bank (RBI) raised the interest rate back-to-back to control inflation and prevent a rout of the rupee as the global trade war escalates. There is a hike in interest rates by 25 basis points to 6.5%. This raise in REPO rate will definitely affect EMIs of housing and automobile loans for consumers.
RBI Raises REPO Rate Second Time in Two Months:
A panel of six members took the decision of REPO Rate hike. Out of six members, five castes their votes in favor of an increase in REPO rate.
There is a possibility of another REPO rate hike in this financial year. RBI wants to stick to the 4% inflation target. Also, RBI is likely to shape the inflation outlook by the larger-than-average increase in minimum support prices (MSPs) for summer-sown crops, volatility in crude oil prices; and, and reduced Goods and Services Tax (GST) rates on several goods and services.
RBI’s projection of inflation in the second half of 2018-19 is 4.8%.
The panel is in favor of keeping its policy stance neutral and keeping its options open for further rate hikes. One of the reasons for the neutral stance is the potential impact of trade tensions between the US and China.
You may have to pay more interest on your loans as banks are preparing to higher the rates on loans. India’s largest mortgage lender HDFC raises lending rates by 20 basis points after the hike in REPO Rate on Wednesday. Hence, HDFC’s prime benchmark lending rate is now 16.65%, effective from August 01, 2018. Now, you can avail home loan up to INR 30.00 Lakhs at 8.75% & women lenders can avail the same at 8.70%. You will have to pay interest at the rate of 8.85 for a housing loan above INR 30.00 Lakhs & for women, this will be 8.5%.
Country’s largest lender, State Bank of India, raised its long-term deposits rates by 10 basis points. Now, you will get returns on Fixed Deposits at 6.70% with maturity between one year and less than two years. Both deposits, as well as lending rates, are going up.
You cannot rule out the possibility of other banks following the suit.
On the basis of overall assessment, the central bank retained its GDP growth projection at 7.4% for 2018-19.