Home, car loans may get costlier as RBI hikes repo rate

Mumbai: In line with market expectations, the Reserve Bank of India increased its key policy rate, the repo rate by 25 basis points to 6.5 percent, in its third bi-monthly meeting for the fiscal. The policy stance has, however, been retained as neutral.

This is the second consecutive hike. This will affect EMIs of housing and automobile loans for consumers.

Consequently, the reverse repo rate under the LAF stands adjusted to 6.25 percent, and the marginal standing facility rate and the Bank Rate to 6.75 percent, RBI Governor Urjit Patel informed.

The decision of 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 four percent, within a band of +/- 2 percent, while supporting growth.

RBI said various indicators suggest economic activity continued to be strong. “The progress of the monsoon so far and a sharper than the usual increase in MSPs of kharif crops are expected to boost rural demand by raising farmers’ income. Robust corporate earnings, especially of fast moving consumer goods (FMCG) companies, also reflect buoyant rural demand. Investment activity remains firm even as there has been some tightening of financing conditions in the recent period,” the policy statement said.

The MPC has retained GDP growth projection for 2018-19 at 7.4 percent.

Inflation is projected at 4.6 percent in Q2, 4.8 percent in H2 of 2018-19 and 5.0 percent in Q1 of 2019-20. Excluding the HRA impact, CPI inflation is projected at 4.4 percent in Q2, 4.7-4.8 percent in H2 and 5.0 percent in Q1 of 2019-20. (UNI)