Mumbai, Aug 5: Home, auto and other loan EMIs are set to rise further after RBI on Friday raised the key interest rate by 50 basis points, the third straight increase since May in an effort to cool stubbornly high inflation.
The increase in lending rate or the repurchase rate (repo) by 50 bps to 5.40 per cent is 25 bps higher than the pre-pandemic repo level.
Reserve Bank of India (RBI) Governor Shaktikanta Das signalled that the second straight half-point hike wasn’t the end of the rate tightening regime and more may come to tame inflation that has for six months stayed above the comfort zone of 6 per cent.
The central bank however did not revise its existing economic growth or inflation forecast despite indications of a global slowdown, recessionary conditions in the developed economies, and the moderation already witnessed in commodity prices.
“Inflationary pressures are broad-based and core inflation remains elevated. Inflation is projected to remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23, entailing the risk of destabilising inflation expectations and triggering second-round effects,” Das said.
RBI said the volatility in the global market is leading to imported inflation.
The spillover from geopolitical shocks has resulted in uncertainty in the inflation trajectory. Global commodity, metal and food prices have eased from recent peaks, however, they still remain elevated.
On the domestic front, higher sowing of Kharif crops bodes well for the food price outlook. The shortfall in paddy sowing is being monitored closely, even though rice stock remains above buffer norms.