Why RBI is making money more expensive

HIGHLIGHTS

• This is the second rate hike by RBI in two months and the second under Modi government
• Loans will get costlier because banks are reluctant to pass on rate cuts but are quick to cash in on hikes (repo rate came down by 2 per cent in the last four years but home loan rates fell only by 1.5 per cent)

• This is the second rate hike by RBI in two months and the second under Modi government
• Loans will get costlier because banks are reluctant to pass on rate cuts but are quick to cash in on hikes (repo rate came down by 2 per cent in the last four years but home loan rates fell only by 1.5 per cent)

Inflation is a worry: Good monsoon and a higher-than-usual increase in government-guaranteed price for crops will raise farmers' income, then rural demand and then inflation. However, if companies pass on the recent GST rate cuts, some of the impact of inflation will get moderated.

RBI hikes repo rate: What happens to your EMIs now

Fuel prices are still high: Crude oil price has moderated but there's no certainty on where it's headed. High fuel prices can push inflation higher.

Economy is doing fine: Expected GDP growth rate of 7.4 per cent for the year is a sign of a strong economy.

Weak rupee: Among Asian currencies, Indian rupee has fallen most against the US dollar. High interest rates can arrest the fall by attracting foreign capital.

For you: Loans will get costlier because banks are reluctant to pass on rate cuts but are quick to cash in on hikes (repo rate came down by 2 per cent in the last four years but home loan rates fell only by 1.5 per cent). Depositors may gain as banks are likely to raise deposit rates marginally after SBI's move this week. RBI plans to make it easier for banks to address customer complaints.