New borrowers must avoid over-leveraging; prepare to cough up more as down payment
The 10-year government bond shot up 26 bps, with the street expecting another rate hike in the June policy
RBI announcement saw the markets tumble, with the S&P BSE Sensex slipping over 1,100 points in intraday deals to around 55,800 levels.
On Wednesday, 10-year government bond yields ended the day at 7.4 per cent, against Monday's closing of 7.1 per cent
The MPC is faced with the grim prospect of missing its inflation mandate - which is to maintain average inflation between 2-6% for three consecutive quarters
The rate hike was expected in June, but clearly the central bank sees inflation path as being quite ominous to trigger such an action.
Niranjan Hiranandani, managing director of Hiranandani Group, said the RBI had to ensure that inflationary pressure on the individual did not get exacerbated by higher rates on home loans
The bond markets also saw a sell-off, and the yield on the 10-year government bond rose to 7.37 per cent, hitting a three-year high
Consumer price index (CPI)-based inflation rate rose to 6.95 per cent in March 2022 from 6.07 per cent in the previous month
The MPC has focused on preventing inflationary expectations from un-anchoring in an increasingly uncertain environment.
In the last policy meeting in April, the monetary policy committee (MPC) of the RBI had shifted its focus to tackle the rising inflation in India after the Russian invasion of Ukraine
The central bank earlier this month started to move away from its ultra-loose monetary policy.
Nearly 7% retail inflation in March may spur policy tightening
That it's not far away is a reality, and the Indian central bank is not in denial mode. Despite the rate not being increased, formally, there couldn't have been a more hawkish policy last week
RBI Governor Shaktikanta Das said the RBI actions on KYC rules have to be in consonance with the Prevention of Money Laundering Act (PMLA)
Real action only after policy rate revision
The projection on inflation is based on the assumption of international crude oil prices of the Indian basket remaining at $100 billion a barrel
'For a majority of population and age groups, uncertainty in inflation expectations increased for both three-month and one-year horizons, as compared to the previous survey round' the RBI said
It is also expected to help in softening the blow from hardening bond yields, bankers and analysts said
Sets stage for rate hikes after June policy amid high oil prices, yields