Home,auto and corporate loans have to become more expensive,as the Reserve Bank has raised key rates for the fourth time this fiscal,bankers said today. Banks need to pass on the hike to customers as their cost of funds has gone up,Indian Overseas Bank Chairman and Managing Director M Narendra said. "I believe banks would wait till the month-end before taking a call on an interest rate hike," he said. The RBI has raised the short-term lending (repo) rate by 25 basis points to 8.25 per cent and the short-term borrowing (reverse repo) rate will move up by a similar percentage to 7.25 per cent. Subsequently,the interest rate under the Marginal Standing Facility,an additional borrowing window for banks,has gone up to 9.25 per cent from the earlier level of 9 per cent. This is the 12th time since March,2010,that the RBI has raised key interest rates to check inflation,which is currently ruling above 9 per cent. "The rate hike is on expected lines and would result in interest rates,both deposit and lending,going up," Oriental Bank of Commerce Executive Director S C Sinha said. Echoing similar views,Corporation Bank Chairman and Managing Director Ramnath Pradeep said,"Banks will have to raise rates,but when and how will be decided by individual banks,depending on their asset liability conditions." According to Punjab and Sind Bank Executive Director P K Anand,the impact of the policy rate hike will take effect with a time lag. The banks,he said,will maintain the current rates at least for the next 15 days and take a call on revising them after ascertaining credit demand. Earlier this week,State Bank of India Chairman Pratip Chaudhuri had said if the RBI raised interest rates,banks would have to pass on the increase to customers. "It has to be financial transmission," Chaudhuri had said. ICICI Prudential Life Insurance Senior Vice President (investments) Arun Srinivasan said in line with market consensus,RBI hiked the repo rate by 25 basis points to 8.25 per cent. Contrary to market expectations,he said,the RBI did not lighten its hawkish stance in this policy and reiterated that future policy actions will be primarily driven by inflation trajectory. According to IDBI Federal Life Insurance CIO Aneesh Srivastava,high inflation is certainly a risk for the economy but to manage inflation is not the sole responsibility of the RBI through the monetary policy. Rise in petrol prices would further add to inflation and if inflation is the only objective and monetary policy is the only tool,then RBI would remain hawkish for some more time,Srivastava said. The Exim Bank said that the Central Bank may continue raising interest rates further. "This may be not be the last time and the cycle may continue as inflation still remains high. Industry has to adjust with high rate level," Exim Bank CMD T C A Ranganathan said here today on the sidelines of ICC Exim Summit. The trend for overseas borrowing may also face similar borrowing cost pressure of foreign currency loans,particularly for floating rate forex loans. "Due to Greece and Italian problems,the swap rates have zoomed from 70-100 basis points making overseas borrowing costlier," he said.
