Interest Rates Rising

US FED Reserve had been constantly hiking interest rates due to high inflation fuelled by the heating up of commditities prices. And Globaly central banks were trying to match US FED by doing the same. In India also RBI started taking a harder stance by revising the REPO and Reverse REPO rates. Last month the rates were increased by 25 basis points. This has lead to increase in the cost of borrowings of commercial banks who are passing this on to their clients by revising their lending rates.

It is quite evident that since the rate of interest goes higher it will impact the sectors of economy that are dependent on interest rates, like the housing sector. To some extent the housing real estate boom in India was related to the cheap housing loans offered by banks. Still finace minister P Chidambaram believes that the interest rate hike is very moderate and it will not affect the booming housing sector.

The government is trying to do its best to not allow the interest rates to hamper the growth of our economy. The cost of borrowings of the Indian companies has increased in recent times which might affect profitability. The govt. is trying its best to keep a balance by hiking the interest rates to control inflation (abt 5%) and at the same time trying to keep the cost of borowings down by infusing liquidity through reduction of CRR ratio to 5%.

It is very clear that the govt. supports high growth rate of GDP, and in order to maintain this they are trying to keep cost of borrowing low. They are also asking the PSU banks to not hike their PLR(Prime lending rates) in accordance with the market.