MUMBAI: While hitting individuals, the higher rates are also likely to impact the auto and real estate sectors, where demand is directly linked to the cost of funds for individuals. A 50 basis points hike will increase the equated monthly installment on a 20-year home loan of Rs 10 lakh by around Rs 342.
With inflation inching close to double digits, there are chances that the RBI may increase rates again in future. However, some bond dealers feel that given the decision by the US Fed to keep rates near zero and the likelihood of a sustained slowdown in West, RBI may choose to pause. This view is reflected in the prices of government bonds. Banks which are lending at 8% in the interbank market are willing to invest in 10-year bonds at a yield of 8.2%. A uniform yield across a long tenure indicates that lenders anticipate a slowdown. At the same time, banks are also not increasing long-term deposit rates with the same measure as short-term rates as they are uncertain of the demand for loans.
The rate increases come at a time when industry bodies have been pleading with the central bank to cut interest rates in the wake of the US downgrade. "The trend of declining commodity prices since the rating downgrade also augurs well for a RBI rate cut. The Reuters-Jefferies CRB commodities index is now at an eight-month low on global growth fears, the perfect foil for a RBI rate cut as fuel alone accounts for over 15% of the WPI and the government is already talking of a cut in petrol prices if crude prices decline further," said the Federation of Indian Chambers of Commerce and Industry in a statement.
The country's largest housing finance company, HDFC, had already raised rates by 50 basis points last week.
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