The Reserve Bank of India (RBI) has raised the policy rate (the repo rate) eleven times by a cumulative 325 basis points (bps) since October 2009 and proposes to increase it again to contain the heated inflation rate.
The increase in the Base Rates/Benchmark Prime Lending Rates (BPLRs) of banks, consequent upon increase in policy rate by the RBI, may result in increase in EMIs particularly in respect of loans which are contracted at floating rates.
The Commercial banks have been increasing both their deposit and lending rates as per the directions of the RBI. While the borrowers pay high interest rates when the lending rates go up consequent upon hike of policy rates by RBI, the Scheduled Commercial Banks (SCBs) also raise their deposit rates which have increased in the range of 25-500 basis points (bps) since March 2010 across all maturities.