RBI's rate hike: EMIs set to go up

EMIs for home, auto and personal loans are set to go up again as the Reserve Bank of India (RBI) today hiked key interest rates by 25 basis points, 10th time in the last 15 months, in its effort to rein in high inflation.

At the risk of sacrificing growth, the RBI raised the short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points each to 7.50% and 6.50%, respectively.

Leading bankers said interest rates would harden further as cost of funds has become costlier.

"This measure and the prevailing liquidity conditions could lead to an increase in funding costs for banks and in lending rates," ICICI CEO and MD Chanda Kochhar said.

In its mid-quarter review of credit policy, the RBI noted that nearly 47 banks have raised their base lending rates by up to 300 basis points (or 3 percentage points) between July 2010 and May 2011.

For Rs 30 lakh home loan for 20 year tenure, for instance, the 3 percentage point hike would translate into about Rs 4,500 more in EMI.

The central bank also indicated that borrowers' woes may not end here as it "will need to persist with its anti- inflationary stance of monetary policy". For this sacrificing growth in the short term may be "unavoidable".

Current inflation measured by WPI is hovering over 9% for the month of May this year.

Finance Minister Pranab Mukherjee endorsed the RBI stance stating, "We need to have price stability for sustaining growth in the medium term."

Expectedly disappointed industry said the RBI move would hurt growth and have a negative impact on investment sentiments. The share market too showed disapproval with the BSE-Sensex shedding 146 points to end below 18,000-mark.