India's largest public-sector lender State Bank of India (SBI) has hiked rates of some retail and corporate loans as soaring inflation has raised concerns that the Reserve Bank of India (RBI) may start a liquidity tightening exercise from June by lifting the repo rates and changing the stance.
SBI has raised loan rates for corporates and some retail borrowers by 10 basis points, setting the stage for a wave of rate hikes across the banking sector, reported Mint.
Since its last interest rate hike in December 2018, SBI has steadily brought down its marginal cost of funds-based lending rate (MCLR) till June 2020. Its one-year MCLR, linked to this benchmark, now stands at 7.1 percent, the Mint report said.
Meanwhile, Bank of Baroda (BoB) and Axis Bank have also reset their MCLR rates higher by 5 bps each, and experts said more would follow suit. The new rates at BoB, SBI and Axis took effect from April 12, April 15 and April 18, respectively, the Mint report further added.
The hikes in lending rates are in anticipation of a rate hike by the RBI in the upcoming policy meet in June as inflation is soaring high.
India's March retail inflation, as measured by the Consumer Price Index (CPI), jumped to a 17-month high at 6.95 percent, beating market estimates.
The fresh inflation data has now raised the chatter on RBI's course of action. Some analysts believe RBI can begin hiking rates from June only.
"We now expect to see 50-75 bps of rate hikes by the end of Q2FY23, followed by a pause in the second half of FY23, and perhaps another 50 bps of hikes in FY24," said Aditi Nayar, Chief Economist, ICRA.
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, sees a very high probability of a rate hike of 25bps in the June policy along with a stance change.
Experts are also expecting a further rise in 10-year bond yields, which have already hardened 31 basis points (bps) to 7.15 percent in April. Bond yields may rise further due to elevated inflation and the rate hikes by the RBI.