RBI hikes rates by 0.25%; home, auto loans to cost more

The Reserve Bank of India today hiked key lending rates for the 12th time in 18 months. The repo rate (at which banks borrow money) was raised by 25 basis points or 0.25 per cent to 8.25 per cent. The reverse repo rate is now at 7.25 per cent from 7 per cent.

Although industry was disappointed at the rate hike, most experts had anticipated it in view of the spiralling inflation, which hit a 13-month peak in August at 9.78 per cent - which is said to be almost double the RBI's 'comfort level' of 5.0 per cent.

The inflation was fuelled by price rises in food, fuel and manufactured goods.

Coming hard on the heels of a steep rise in petrol prices, the hike will hit consumers too, as the cost of auto and housing loans will go up. Bankers immediately said they will pass on the increased rates to consumers.

Both industry and the government are hoping that inflation stabilises and the RBI is able to bring down rates, as the high rates have led to a slowdown in economic growth.

Finance minister Pranab Mukherjee said on Thursday that inflation may now have peaked and "we should see a gradual moderation in monthly headline inflation".