Inflation is still hovering in double digits with food inflation shooting up to 11.47% and fuel price index at 12.71% for the week-ending August 28 from last week's 10.86%.

Earlier, it was expected that since food inflation was then in single digits, the focus of RBI might shift to non-food inflation.

However with food inflation again showing a rising trend, tackling it has become even more important for the RBI.

Key policy rates viz. repo rate and reverse rate have therefore been increased to 6% and 5% respectively. The spread between repo and reverse repo was also narrowed down by 25 basis points.

CRR has not been increased from its current level of 6% contrary to apex bank's earlier indication to contain inflation.

So, what is in store for consumers & borrowers?

This article details the impact of RBI's policy on household expenses, housing loan, car loan and personal loan for the next few months.

Impact on household expenses and borrowers

• Banks might increase the base rate considering the fact that credit demand will pick up in October and bankers will assess the demand supply situation before taking a call. The repo rate was increased from 5.5% to 5.75% and the reverse repo rate from 4 to 4.50% in July. And now on September 16, the repo rate and reverse repo rate are again hiked by 25 and 50 basis points respectively. All these factors will lead to an increase in the base rate of the banks. This in turn might lead to an increase in your housing loan rate, car loan rate and personal loan rate.
• Increase in the repo rate and reverse rate will be good news for depositors as this should prompt banks to hike the deposit rates before they take a call on the lending rates linked to base rate.
• The impact of increase in key policy rates should have a similar impact on education loans as well. But since the Government may plan to cap the education loans at 2% over and above the base rate. This move could substantially reduce the funding cost for students.
• Since the RBI has narrowed down the spread between repo and reverse repo again by 25 basis points accompanied by the fact that it will review the monetary policy every 1.5 months, the short term volatility in overnight rates will be reduced. This will further bring stability in financial market.
• As there is liquidity crunch in the market, the operating rate of banks will continue to be the repo rate.
• The food price inflation rose from 10.86% to 11.47% while the fuel price index stayed flat at 12.71% for the week ended August 21. It is expected that there will be a large dip in food prices after October as kharif harvest would bring down the prices. Hence, with RBI increasing the key policy rate along with the fact that kharif harvest would bring down the prices, it seems that overall inflation including the fuel price index will fall in the months to come.

It's quite clear from the key policy rate hikes that the apex bank is hawkish about containing inflation.

Housing loan, car loans, personal loans and education loan might get costlier in the months to come as a result.

However, the deposit rates are likely to be increased in line with the increase in key policy rates.

All these measures will ensure your food bills and fuel expenditure come down in the coming months.