Responding to the Reserve Bank of India's (RBI) surprise rate hike, Union Finance Minister Nirmala Sitharaman said that the rate hike was not a surprise, though the timing might have been. “It is the timing which came as a surprise to many, but the act people thought should have been done anyway—to what extent could have varied,” Sitharaman said at The Economic Times Awards for Corporate Excellence. “It came as a surprise because it came between two monetary policy reviews.” The finance minister added that inflation in India isn’t as much as it is in the US or the UK. “But, still, the challenge of recovery versus inflation seems to be following a particular template across the globe,” she said.
The RBI's rate hike on Wednesday suggests that the central bank wants to act quickly before inflation derails the growth recovery. In a move that will raise borrowing costs for corporate and individuals, the RBI after an unscheduled MPC meeting hiked the benchmark lending rate by 40 basis points (bps) to 4.40 per cent to contain inflation that has remained stubbornly above the target of 6 per cent for the last three months.
"We believe that the lending rates may go up gradually, and since there is enough liquidity in the system, our borrowing cost may go up only gradually. Most of the borrowing for us is fixed in nature and hence the rate hike will not have an immediate impact on borrowing cost," said Umesh Revankar, Vice Chairman and MD, Shriram Transport Finance.
According to V. Swaminathan, Executive Chairman, Andromeda and Apnapaisa, the rate hike was on the cards as the policymakers were under immense pressure due to the rising inflation in the country and at the global level. "All the loans that come under the Repo Linked Loan Rate (RLLR), especially the home loan and the Loan against Property will now cost higher and there can be a subsequent increase in other loans EMI as most of the banks have already started increasing the MCLR since the beginning of this fiscal year," he said.
Abhishek Goenka, founder of IFA Global, said the RBI did feel the heat lately and took the markets by surprise by hiking rates across repo and cash reserve ratio (CRR). "We have lately seen large FMCG companies feeling the heat across their bottom-line which is clearly reflected in their prices and communication. The market was expecting a rate hike by RBI but in a slower pace," he said.
It is for the first time since August 2018 that the key interest rate has been hiked by the Reserve Bank with an aim to check the rising inflation. The CRR too has been increased by 50 bps to suck out Rs 87,000 crore liquidity from the system.