Yet another interest rate hike! Pay more for your loan repayment

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Kochi: Three rounds of continuous interest rate hikes by the Reserve Bank of India (RBI) have recently been a severe setback for the public and businesses in Kerala.

Rising interest rates apparently only benefited banks and other lending agencies. The higher interest rate invariably raises the price of all commodities. Those who have taken out car and home loans will now have to bear an additional interest burden.

Now the public will be inundated with messages, informing them of the corresponding increase in the interest rate for bank loans.

For depositors, it will take another two or three months to benefit from the rise in interest rates. But even then, they need not expect commensurate benefits from rising interest rates.

three in a row

In a short period of 94 days, there was a 1.4% increase in interest rates. On May 4, there was an increase of 0.4%, while in June the increase was 0.5%. The last increase announced on Friday was an additional 0.5%.

A further rise in interest rates is to be expected. The next wave of interest rate hikes is expected to fall on September 30.

According to some observers, another 1% increase in interest rates is likely over the next nine months.

Why prices are rising
The main reason for raising interest rates is to bring more income to banks from the interest component.

There is a 14-16% increase in demand for loans and it is certain that rising interest rates on loans will soon ring the bank coffers.

Meanwhile, banks are not so eager to increase their deposit base as they currently have a lot of cash in their hands.

Inflationary trends are cited as the main reason for rising interest rates. But the irony is that inflation has not come down even after three interest rate hikes. On the other hand, inflation has actually increased.

The latest inflation rate is 7.1%. Rising prices in India alone do not cause inflation. Factors such as high imported oil prices also contribute to a large extent to inflationary pressures.

According to studies, the purchasing power of the general public is estimated to have declined by 11% after the central bank raised interest rates three times in the recent past.

A person who had the ability to buy a house worth Rs 50 lakh earlier now has the ability to buy only Rs 44.50,000!

Interest rates return to pre-COVID-19 levels

It was recently that RBI raised Repo rates by 50 basis points to 5.4%. Repo rates last hit 5.4% in August 2019.

At the start of the spread of the COVID-19 pandemic, the Repo rate was 5.15%.

After August 2018, it was in May this year that the interest rate was raised for the first time.

RBI Governor Shaktikanta Das, while announcing the interest rate hike, hinted that the Monetary Policy Committee (MPC) meeting to be held from September 28-30 would resume further interest rate hike .

According to experts, there could be a chance for another 0.5% rise in Repo rates.

India’s inflation rate has held at a level above six percent, which is above the RBI’s tolerance level, for the past six months.

The inflation rate calculated on the basis of the consumer price index (CPI) for June amounts to 7.01%. This led to an assumption that the inflation rate in this fiscal year should be 6.7%.

The country’s GDP growth is estimated at 7.2%. (With contributions by Jikku Varghese Jacob)

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