Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial

Interest Rate Hiking Time WorldWide

The ECB raised interest rates by 25bps (or 0.25%) to 1.5%.

China recently raised rates, by 25bps, to 6.56%.

Sweden also pushed its rates up to 2%, while Australia held rates steady at 4.75%.

Malaysia hiked the Bank Cash Reserve Ratio (CRR) to 4% (from 3%), while keeping overnight rates at 3%. CRR is the cash banks are supposed to hold against withdrawals (India has 6% CRR)

Indian rates are currently 7.5% for overnight repo (that’s overnight borrowing from the central bank)

In India, various banks have pushed their rates up:

  • ICICI Bank pushed base rate up to 9.75% (up 25bps)
  • SBI also went to 9.5% (up 25 bps)
  • Corporation Bank (up 35 bps to 10.25%) , Canara Bank (up 25bps to 10.25%) and a number of public sector insurers have already done their bit.

For someone with a loan, this is not a lot of fun. But people tell me they only get letters saying that their EMIs have been extended in tenure, the value of each EMI is left unchanged. Have you had a different experience?

  • The whole world seems to be troubled with problems of Increasing Inflation with stagnant growth

  • piyush modi says:

    yes ive had a different experience.. i left a comment on one of your posts sometime back.. let me copy paste that again –
    ” Though this comment is not particularly relevant to this post, but I wanted to leave it and want you to write about it cause I am sure it will help many many of your readers.
    My dad has a home loan with ICICI Bank which was once taken at a floating rate of 7.5%, and which now stands at 14.5% rate. I recently called up ICICI Phone banking to ask the procedures for a balance transfer to a different bank & I was told that they are running a scheme where existing customers could move to a lower rate of interest. I was skeptical at first, but then went through with the documentation required and apparently its an amazing scheme. Obviously ICICI wont advertise it or inform you, but it is available.
    My dad’s rate has been reset from 14.5 to 10.5% a huge 4% difference. His tenure, which was originally 180 months, and had now gone up to 315 months despite making the EMI repayments for the last 4-5 years (60 months approx) stood slashed at one go to 160 something. Alternatively, one can choose to reduce one’s EMI instead of choosing to reduce the tenure.
    For those wondering how such a drastic reduction in tenure is possible, it can happen. In this case, the total EMI was approximately equal to the interest charged in a year and only a very small amount (4-5%) of the EMI was being used to repay capital. With the fall in the rate charged by 4%, this shifted up considerably to 25-27% of the EMI, and this means that a lot more of the EMi is being used to repay capital instead of just service debt and this leads to drastic reduction in tenure.
    What were the documentation/formalities required –
    1. Cheque for a charge of 0.5% of balance outstanding on the loan+service tax on the same.
    This is extremely cheap as I will recoup this charge within 2 months
    2. Non-judicial stamp paper of Rs 30 signed by borrower & co borrowers
    3. Some sort of an agreement which you will get from the bank itself and has to be signed by borrower & co borrowers
    4. All outstanding EMI payments have to be cleared (obviously)
    Now I am not sure whether the scheme is available for all home loan borrowers or a particular category, as also the amount of reduction in rates will be the same for all borrowers or not. But give a call to ICICI bank and just ask. It will save you a tonne of money. ”
    PS – When i wrote that comment I had just applied for resetting of the rate on the loan and was awaiting confirmation from the bank regarding the same (in case there was some hidden clause/charge that would derail the whole thing). I received confirmation a few days back and it was exactly as I was told it would be.

  • deepak says:

    Actually Citi did increase my EMI in one shot by about 15% or so to adjust for this. I was anyways planning to do this, I am not sure of how long the increases will stay and given the way this government is working, these is sure shot loss of momentum in the economy…thats another discussion. But yes, citi has been fairly fair and moving it in small notches, i am hoping someday I will also see them coming down 🙂

  • Sanjay says:

    Often people have a choice of increasing the tenor or increasing EMI (my bank gave me both options – I chose completely different option – to partly pay-off the principal).
    Deepak – you must do an article on economics of chosing between the three – increasing EMI, increasing tenor or part payment.
    I was a bit confused while deciding myself – interest rates are going up, maybe will go up a little bit more, but are definitely coming down by, say next year. How do we decide which is the best option?