Banks not to hike rates immediately

Indian bankers on Tuesday said that they were not in a hurry to raise their interest rates after the country?s federal bank raised key interest rates by 25 basis point to tame the soaring inflation.

According to the Reserve Bank of India (RBI), it has been decided to increase the repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.25 percent to 6.5 percent with immediate effect.

The increase will make housing and auto loans dearer along with commercial loans. However, the rates of cash reserve ratio and statutory liquidity ration remained the same.

The measures are generally being received favourably with most saying that the hike comes as per expectations.

?The rate hikes announced by the RBI is in line with the central bank?s attempt to reign in inflationary expectations and prevent the current inflation to become more generalized,? said? Shanto Ghosh – Principal Economist, Deloitte India.

He said that RBI?s projections of about a 7 percent inflation target for the current fiscal was consistent with the expected high GDP growth rate for the economy.

Associated Chambers of Commerce and Industry of India (ASSOCHAM) President Dilip Modi said that the new rates are as per street expectations as any bigger steps by RBI could impact the growth trajectory which has shown consistency in the last few quarters.

Modi too backed RBI?s inflation projection and its new monetary policies while saying that? that these must be supplemented by other measures to remove supply side constraints and capacity building to bridge demand supply gap.

The major section of bankers on Tuesday ruled out raising lending rates immediately. Backing the finance industry perception, they said that the hike was factored in given the upward trend of inflationary forces.