RBI hikes repo and reverse repo

Yesterday evening the RBI hiked the repo and the reverse repo rates.-- these are the rates by which the central banks take loans and gives loans to banks.

Reason-- simple-- Inflation.

My last post was on inflation and had highlighted the fact that the RBI could hike interest rates in its april 20th meeting-- However , it has done out side of the credit review -- indicating that they are worried about inflation.

Does this mean that there may not be further hikes on April 20th? Hardly. It is expected that the RBI will increase the CRR ( amount that the banks need to keep with the RBI) then.

Monetary policy has a lag effect-- it takes a few months for the impact to be felt on the ground-- but my guess is that markets may go down in the short term-- especially businesses which are rate sensitive-- autos and real estate.-- this may be a good time to pick them up.

Also this will signal the increase in interest rates for home and other loans.  Already banks have started talking about it ( no extention of the HDFC 8.25% loan-- read post here)

Deposit rates could also be hiked-- so looks like short term debt funds may see a nice little bump ( presently evaluating some short term debt funds for my self)

As i said-- Look to understand...


Happy investing.


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