For the third time in a row, banks have moved ahead of the central bank in deciding interest rates. With less than a week to go for RBI’s monetary policy statement, leading lenders like SBI, ICICI, PNB and HDFC have raised their interest rates, pre-empting the central bank which is expected to raise rates again this week.
The country’s largest lender State Bank of India raised its marginal cost of funds based lending rate (MCLR) across tenors by 0.05 percent or 5 bps, which come into effect from October 1. While private sector lender ICICI raised its MCLR by 0.1 percent or 10bps.
On September 29, state-run Punjab National Bank hiked marginal cost of funds based lending rate (MCLR) for short-term loans by up to 0.2 percent.
The country’s largest mortgage lender HDFC raised its retail prime lending rate (RPLR) by 10 basis points with immediate effect. The new rates vary from 8.80 to 9.05 percent on various slabs of loans.
In contrast to conventional practice when commercial banks were supposed to take a signal from the central banks rate action, local commercial banks have taken an interest rate action even before the central bank announced its decision for the third consecutive time.
The RBI’s monetary policy committee is expected to meet on October 5 to decide on interest rates. In its August policy meeting, the Reserve Bank raised its benchmark repo rate by 25 bps to 6.50 percent following the rupee’s depreciation and rising crude prices among other which could spoke inflationary pressures.
Market expects the RBI to raise rates on October 5 as well. “The recent escalation in markets-driven volatility and sharp rupee depreciation, however, has not only raised the likelihood that the hike might be frontloaded, but also that an additional 25bp hike looks likely this year” said Radhika Rao, India economist at Singapore based DBS in a research note.