RBI Raises Repo rate by 25 bps: Its  impact and influence:

11th June 2018


RBI has last week raised the Rep rate by 25 Bps- the rate at which RBI infuses liquidity into the Banking system form 6 % to 6.25 %. after a gap of four years. RBI has an onerous task of controlling inflation by using the reserve rates. Now that RBI felt  the concerns over inflationary pressure stemming from rising commodity prices were behind this  move.  So far the borrowers were enjoying a low rate of interest for their loans including the Home loans on account of no change in the  RBI Policy rates. But this will now undergo a sea change across the board  and tightening of  rates.  Many banks have already started increasing the Deposit rates and the MCLR interest rates led by SBI and ICICI Bank. This is aimed at containing inflation rate perse. Some Analysts predict that there is a chance of further 25-50 bps hike during the remainder of 2018-19 if oil prices continue to rise and US Treasury yields rise to 3.25 % levels and above.  The progress of monsoons, marginal support price for agricultural products, fiscal policy targets, rupee- dollar parity value  etc.,would also be key to the decisions of interest rate hike next time.  RBI says that it  keenly watches the behavior of the economy based on the above  parameters and take a decision  at the appropriate time but RBI, by and large is upbeat about the overall economy and the resultant GDP growth. The Corporate borrowers  will do well to foresee their  Capex and revenue expenditures and prepare their perspective planning of cash inflow and out flow and accordingly tie up with their banks for their emerging working capital loans and Term loans so as to have a prudential and effective financial management  in the days to come.

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