TNN

Mumbai, Jun 12: In a surprise move, the RBI on Wednesday raised the rate at which it lends shortterm money to banks.The move, which will make borrowing by banks more expensive, is expected to lead to an increase in bank lending rates—from home loans to personal loans. 

Deepak Parekh, chairman of leading home loan company HDFC, said, “If the costs of our funds go up, we will have to increase interest rates.’’ 

The RBI raised repo rates to 8% on Wednesday. Explaining the move, the central bank in its statement said that it had addressed the “unprecedented uncertainties and dilemmas that exist’’. Despite measures by the RBI in the recent past, inflation continues to rise unabated. There is an expectation that the recent hike in fuel prices on June 4 will lead to another round of price increases. 

Sonal Verma, India economist with Lehman Brothers, said, “The fuel price increase is likely to take the inflation rate above 9%. In that context, this is more of a pre-emptive move.’’ 

Opinion is divided on whether the RBI move will affect economic growth. Banks like Standard Chartered believe that the decision will not hamper growth but help rein in the rupee fall. Public sector banks like the Union Bank and Bank of India said it would definitely lead to a hike in interest rates, slowing down credit offtake. 

D K Joshi, principal economist at Crisil, said, “This move by the RBI means that general interest rates in the economy are expected to go up.’’