MUMBAI: Home loans and other borrowings will get more expensive, with the Reserve Bank of India hiking its key policy rate by 25 basis points. The hike did not come as a surprise as this was in line with forecasts by economists.
Announcing the decision of the monetary policy committee (MPC) on Wednesday, RBI governor Shaktikanta Das said that the repo rate has been increased to 6.5% from 6.25%. Almost all the floating rate loans, including home loans, are linked to the RBI’s repo rate, which is the rate at which it lends to banks.
The hike is good news for depositors as the increase in lending rates would mean that the banks will have more headroom to offer higher returns without sacrificing their margins. Das said that the rate hike has resulted in the real policy rate (rate adjusted for inflation) moving into positive territory.
The governor said the budget would support growth despite the weak global situation. While inflation is expected to moderate in FY24, it will likely rule above the 4% target. He said the outlook was clouded by geopolitical tension and volatile crude oil prices. Das said that GDP growth in FY24 is expected to be 6.4%.
“The MPC will continue to maintain a vigil on the evolving economic outlook to align with the target. Inflation is expected to be 5.7% in the fourth quarter. MPC remains focused on the withdrawal of inflation,” said Das.
Das said that economic activity remains resilient and urban activity is firming up, especially in services – travel, tourism and hospitality with domestic air passenger traffic crossing pre-pandemic level. “Several high-frequency indicators also point toward the strengthening of activity.
“Investment activity continues to gain traction. The total flow of resources to the corporate sector increased to over Rs 20.2 lakh crore as against Rs 12.2 lakh crore a year ago,” said Das.