EMIs set to increase, SBI lending rates up

New Delhi, April 18

The equated monthly instalments (EMIs) are set to go up as the country’s largest bank, SBI, has hiked its marginal cost of lending rate (MCLR) by 10 basis points (bps) across all loan tenors with effect from April 15.

The wholesale price-based inflation (WPI) spiked to a four-month high of 14.55% in March on rising prices of crude oil and other commodities due to disruption in global supply chain in the wake of the Russia-Ukraine war, a development that may prompt the Reserve Bank of India to raise interest rates to contain price rise.

WPI inflation has been in double digits for 12 consecutive months now. The rise in WPI-based inflation comes after data released on April 12 showed Consumer Price Index (CPI) based inflation jumping to a 17-month high of 6.95% in March.

The rise in WPI inflation was driven by an increase in prices across the board, although non-food items led the charge. The food index increased from 8.47% in February to 8.71% in March due to a steep increase in the cost of cooking oil.

“Faster growth in prices is bound to harden inflation expectations going forward; this has the potential of creating a vicious cycle of inflation and inflationary expectations feeding into and off each other,” said DRE Reddy of CRCL.

The SBI’s hike in interest rates comes despite the RBI keeping key policy interest rates unchanged in its latest policy review earlier this month. Other public sector banks and private banks are expected to follow suit.

A hike in interest rates was in the offing despite the RBI keeping the repo rates unchanged for the 12th consecutive time in its April monetary policy review. Two months earlier, the SBI had hiked interest rates on fixed deposits for tenure less than three years by up to 15 bps.

More such hikes in interest rates are likely as the high inflation will compel the RBI to raise policy interest rates in the next MPC meeting in June. Retail inflation has breached the RBI’s upper tolerance band of 6% for the third time this year and the food and fuel prices are likely to climb due to the Russia-Ukraine war.

Other banks likely to follow suit

The SBI’s hike in interest rates comes despite the RBI keeping key policy interest rates unchanged in its latest policy review earlier this month. Other public sector and private banks are likely to follow suit.