RBI hikes overnight rates by 0.25 per cent; home loans expensive

The Reserve Bank of India (RBI) today hiked the repo rates by 25 basis points each, which, in turn, is all set to make home loans expensive. The reverse repo rate has been increased by 25 basis points to 6.0 per cent and the repo rate has also been increased by 25 basis points to 7.0 per cent. In the quarterly review of the annual statement on monetary policy, the apex bank kept unchanged the long-term rates at which it lends to commercial banks at 6 per cent.
However, the RBI has kept the bank rate and cash reserve ratio unchanged. While presenting the first quarter review of its annual policy, RBI Governor Dr Y V Reddy apparently chose a cautious approach, considering the Indian economy is still on a recovery path and inflation is ruling at above seven per cent. ''Inflation movements continued to be driven by supply shocks in the first quarter of 2006-07,'' the RBI said in a report on macro-economic and monetary developments, referring to a spike in prices of global crude oil, India's biggest import. The cash reserve ratio (CRR) and bank rate have been left unchanged at five per cent and six per cent, respectively. With the hike in the repo rates, majority of the bankers felt that it (hike) is bound to put some pressure on the rate of interest on deposits. All the same, they said they we will have to wait and watch for some time before final view is taken and any announcement is made.
The repo rate is the rate at which RBI lends to banks in the short term to manage liquidity in the system, while the reverse repo is the rate at which the apex bank borrows from banks to suck out excess liquidity from the system.