RBI hikes key rates

The RBI has continued its upward interest rate revision policy of the past one year by yet again hiking the interest rates by 50 basis points. The new repo rates are 8% and the corresponding reverse repo rate (1% lesser than repo rates) is 7%. This in effect will mean that things are going to be costlier on the borrowing front.

Here's a review of what is in store for the common man with the new changes.

The announcements:

• Repo rate hiked to 8.0%
• Reverse Repo rate effectively raises to 7.0%
• Marginal Standing Facility gets automatically adjusted to 9.0 %
• Bank rate and CRR rate maintained at 6.0% each

( Here is a more detailed look at RBI's announcements)

Why has the RBI hiked the prices?

In the words of the Central Bank, the hike has been forced due to 2 major reasons

1. A continued rise in the prices of non-food manufactured products and the rising Crude oil prices

2. There is also considerable indication that business growth is moderating. Meaning that higher growth rates a not seen in the coming few months.

Thus, the RBI has deemed it necessary to continue its anti-inflation policy and continue with raising interest rates.

Over the last one and a half year, the RBI has raised the Cash Reserve Ratio (CRR) by over 100 basis points and the Policy rate by over 275 basis points. This in effect means that banks have to face a net effect pressure of around 425 basis points.

This policy stance of the RBI in the past one year has meant that on an average, all banks/lenders have raised their deposit and Lending rates by over 225 basis points (2.25%). This means that loans have become costlier for you. Your housing loan, Car loan, Personal loan etc have all borne the blunt of this upward rise. Although it must also be seen that deposit rates have gone higher too, the extra income that you get will be compensated by the extra you have to shell out for gas, oil, soap, food and everything!