economists and debt market participants expected the RBI
to keep interest rates stable. Inflation is very much
under control at between 4 and 4.5 per cent and in all
likelihood would meet the RBI''s target of between 5 and
5.5 per cent by March end. It was also felt that there
would be some political pressure on the central bank to
keep low interest rates to facilitate faster economic
the RBI seems to be more concerned about sustaining the
economic growth rates over a longer term rather than pushing
them up further in the short term. The bank has clearly
stated that the risk of higher inflation remains and the
latest surge in crude prices may have forced its hand.
RBI has raised its GDP growth forecast for the current
year to between 7.5 and 8 per cent. The bank also said
that global growth rate for the current year could be
higher than the IMF forecast of 4.3 per cent. In view
of the accelerated growth both domestically and globally,
it is not very surprising that the RBI has taken the precautionary
step of raising interest rates to keep inflation under
credit growth for the commercial banks has remained strong,
the RBI is also concerned about the higher credit risks
the banking sector is taking, especially in the retail
and real estate segments. The central bank had asked banks
to be more discerning in credit approvals many times in
the recent past and higher interest rates would ensure
that borrowers are more judicious.
on consumer and corporate credit
Some of the larger banks had raised both deposit and lending
rates in recent weeks even before the RBI policy announcement.
While most banks have announced that they are evaluating
the situation after the rate hike announcement, some of
them have declared a hike in deposit rates.
rates on deposits were going up anyway as banks are finding
it difficult to attract deposits. The interest rates on
corporate lending may harden marginally, but is unlikely
to be significant enough to impact corporate profitability.
rates on consumer credit may finally see some firming
up. HDFC had announced a rate hike for home loans early
this month and has stated today that it may consider another
hike in the near future. Some of the PSU banks have announced
a home loan rate hike today. The home loan segment may
see the maximum impact as banks can pass on higher rates
because of very strong demand.
on other types of consumer finance may also go up, though
to a less extent. Strong competition among banks in retail
consumer finance and entry of strong non-banking players
would keep the rates in this segment under check.
quarterly review of annual monetary policy