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Home, auto loans to turn costlier as RBI hikes rates
RBI likely to pause after 25bps rate hike
- Goes for 25bps increase, taking repo rate to 6.5%; says core inflation a matter of concern
- Projects GDP growth at 6.4% for financial year 2023-24, down from 7% in the current year
Mumbai: The Reserve Bank of India slowed the pace of interest-rate increases for the second straight time when it on Wednesday expectedly hiked borrowing costs by 25 basis points to 6.5 per cent while keeping the door open for more hikes as core inflation remained high.
The move to raise the rate will make loans – including housing and auto – and corporate credit expensive.
The RBI's six-member Monetary Policy Committee voted 4-2 to raise the benchmark repurchase or repo rate to 6.50 per cent and retain its stance of withdrawing accommodation, which was adopted early last year.
This is the sixth straight increase in interest rates since May last year, and the cumulative hike now totals 250 bps.
The RBI raised interest rates by 35 bps in December 2022. Rates were hiked by 40 bps in May and 50 basis points each in June, August and September.
While the headline inflation print has seen a downward trajectory and has remained below the upper limit of 6 per cent in November and December 2022, the MPC continues to have concerns about the core inflation, which has stayed above 6 per cent for the past 15 months.
"The stickiness of core or underlying inflation is a matter of concern. We need to see a decisive moderation in inflation. We have to remain unwavering in our commitment to bring down CPI headline inflation," RBI Governor Shaktikanta Das said while announcing the committee's decision. Adjusted for inflation, the policy rate still trails its pre-pandemic levels, Das said, adding liquidity remains in surplus.
On the growth front, the RBI projected GDP growth at 6.4 per cent for the fiscal starting April 1 (2023-24), down from 7 per cent in the current year. Das said the Indian economy remains resilient in the face of considerable uncertainties on global commodity prices.
