BUSINESS

RBI hikes rate by 25 bps: House, auto loans to be costlier

Mumbai, June 6: Housing loan and auto loan will become dearer with the Reserve Bank of India (RBI) on Wednesday raising its key interest rate for the first time since January 2015.

The country’s central bank — RBI — has raised repo rate by 25 basis points (bps) to 6.25 per cent, responding to concerns on inflation from surging global crude oil prices. The RBI, however, maintained its ‘neutral’ stance on policy, as it has done over four previous bi-monthly policy reviews when it held the repo, or its short term lending rate for commercial banks, at 6 per cent. This stance allows the RBI to move either way on rates. “The decision of the Monetary Policy Committee (MPC) is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent,” the RBI statement said. “Consequently, the reverse repo rate under the liquidity adjustment facility (LAF) stands adjusted to 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent.”

Addressing the media following the policy announcement, RBI Governor Urjit Patel elaborated that the neutral stance allowed various options to the central bank and was not in contradiction to raising rates.
“The neutral stance leaves all options open… other central banks do the same, there is no contradiction here,” he said in response to a query.

“We have kept the neutral stance as well as responded to the risks to inflation visible in recent months. Inflation has remained over the target level of 4 per cent for over six months,” he added. The six-member MPC voted unanimously for the rate hike that the central bank was undertaking after more than four years and comes for the first time under the Prime Minister Narendra Modi-led government. The government was quick to laud the latest monetary policy review.
“Welcome monetary policy statement. Quite balanced assessment of growth, inflation and external situation and expectations. Rate hike understandable considering existing interest differentials and oil price movement. Should help in removing uncertainties and steadying markets,” Economic Affairs Secretary S.C. Garg said in a tweet. (IANS)