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Pay more for loans as RBI raises rates
Sanjeev Sharma
Tribune News Service

New Delhi, September 16
Just a day after petrol prices were hiked by around Rs 3 per litre, consumers will have to deal with higher loan repayments and interest rates. The Reserve Bank of India (RBI) today hiked the Repo (the rate at which it lends to banks) and the Reverse Repo (the rate at which it borrows from banks) by 25 basis points each. (100 basis points equals 1 per cent). These now stand at 8.25 per cent and 7.25 per cent, respectively.

LITTLE TO CHEER

If for a Rs 10 lakh loan for 15-year tenure at 11.5% interest, you were paying an equated monthly installment (EMI) of Rs 11,682, now the EMI will be Rs 11,842.

Inflationary pressures are expected to ease towards the later part of 2011-12, the RBI said
FICCI said it was difficult to fathom how the rate hike would contain inflation when a cumulative rate hike of 325 basis points since March 2010 had failed to curb prices

The impact of the increase on Equated Monthly Installments (EMIs) for home and auto loans will be Rs 16 per lakh. So , if for a Rs 10 lakh loan for 15 year tenure at 11.5% interest you were paying an EMI of Rs 11,682 now with .25% increase the EMI will become Rs 11,842.

The central bank has raised interest rates by 325 basis points since March last year. This was the 12 th hike by the RBI in the last 18 months. The bank has been on an interest rate tightening spree to control inflation, which has been stubbornly high and is close to the double digit mark.

Personal finance expert, Harsh Roongta, CEO, Apnapaisa.com says that there may not be any immediate impact of these increases on lending rates as demand for loans has already been impacted by the current high interest rates.

Banks are likely to wait and judge demand for loans in the festival season before increasing rates. However, the belt tightening times are likely to continue for loan consumers, says Roongta.

RBI Governor, D Subbarao said that domestically, even as many indicators pointed to moderating growth, both headline and non-food manufactured products inflation were uncomfortably high.

Inflationary pressures are expected to ease towards the later part of 2011-12, RBI said and it would persevere with the current anti-inflationary stance in the current scenario.

The industry is unhappy. “Even as RBI justifies this rate hike of dampening inflationary expectations, it is difficult to fathom that this will be achieved, when a cumulative rate hike of 325 basis points since March 2010 could not achieve this objective!” says Rajiv Kumar, secretary general, FICCI.

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