Your home, car, auto loan EMIs to cost more: RBI repo rate hike 'inevitable', says SBI
Even as the inflation has cooled off, the repo rate hike by the Reserve Bank of India (RBI) is "imminent", says a State Bank of India (SBI) research.
Even as the inflation has cooled off, the repo rate hike by the Reserve Bank of India (RBI) is "imminent", says a State Bank of India (SBI) research. However, the magnitude of the rate hike cannot be predicted. "Even though CPI inflation has cooled off, we believe October rate hike of 25 bps is imminent, but the question is whether the magnitude of rate hike could be even higher by 25bps (say 50 bps)," said the SBI Ecowrap report on September 12.
"A currency crisis by logic calls for a bigger rate intervention, but given that RBI is now an inflation targeting central bank it will be really difficult to justify such action with inflation numbers continuing to be in 4-4.7% range through current fiscal, with the downside at sub 3.5% in November’18. Clearly, the RBI is now caught between Scylla and Charybdis!," it added.
Caught between Scylla and Charybdis is an idiom meaning "having to choose between two evils."
If the SBI prediction comes true, the key rate hike by the RBI would effect an increase in the EMI on various loans. Whenever the RBI hikes the repo rate, banks promptly increase their lending rates simultaneously. The reverse doesn't always happen when the RBI decreases the repo rate.
Repo rate is the interest rate at which the commercial banks get money from the RBI.
The rate hike expectation comes in the wake of sliding rupee, mainly due to negative sentiments over various international factors.
Government officials had initially talked down the continuing depreciation of the rupee for long, before taking a reverse position. SBI believes, talking down the rupee slide was "counterproductive", leading to rupee depreciation at a "frantic pace" in the last few days.
"The statement by FM and the news of PM taking stock on economy during weekend was most welcome and timely one as it has provided an immediate succour to battered market sentiments. The RBI could also chip in with a message that could be most comforting under the current circumstances," it said.
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The research report noted that the RBI intervention in the foreign exchange market has been "limited" in recent times.