Higher rates will impact home loan customers, small businesses: Top bankers on RBI MPC decision

Mumbai: The Reserve Bank of India’s decision to raise the repo rate by 25 basis points is expected to increase borrowing costs for home loan customers and small businesses, top bankers and economists said on Wednesday adding that the move is aimed at containing inflationary pressures without disrupting the economy’s strong growth momentum.

HDFC Bank Principal Economist Sakshi Gupta said the RBI had begun its rate hiking cycle in line with major global central banks, with the latest decision driven by rising domestic inflation risks while growth momentum remained resilient.

"The decision came on the back of rising domestic inflation risks while growth momentum remains resilient. The change in stance to calibrated tightening signals that today’s rate hike is the beginning of a rate hiking cycle and not a onetime move," Gupta added.

"The RBI’s tone and revised macro forecast tilted on the hawkish side with the growth forecast revised up by 40bps to 7.1 per cent and inflation revised up to 5.2 per cent for FY27," she noted.

Bank of Baroda Chief Economist Madan Sabnavis also attributed the 25-basis-point repo rate hike primarily to inflation concerns. He expects another 50 basis points of tightening during the current year, with one hike likely in December followed by another in February.

"The interesting aspect of the policy is that the RBI has not announced any specific liquidity measures which is indicative of the fact that the present approach of calibrating liquidity through the VRRR route will continue,” Sabnavis mentioned.

Indian Overseas Bank Managing Director and CEO Ajay Kumar Srivastava said higher rates would naturally have implications for borrowers, particularly home loan customers and small businesses.

He said banks would need to balance the transmission of higher rates with continued support for productive credit demand.

Srivastava described the RBI’s 25-basis-point repo rate hike to 5.50 per cent as a “measured and pre-emptive step”, noting that the central bank was responding to rising inflation risks amid supply-side pressures from energy prices, a deficient monsoon and El Niño conditions.

"Higher rates will naturally have implications for borrowers, particularly home loan customers, and small businesses. Banks will need to balance the transmission of higher rates while continuing to support productive credit demand," he stated.

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