The Reserve Bank of India on Tuesday increased the rate at which it lends to commercial banks in the short term -- the repo rate -- to 8.5 per cent from 8 per cent, in a bid to discourage consumer spending and rein in inflation that has surged to double digits. It also increased the share of deposits that banks must hold in reserves -- the cash reserve ratio -- to 8.75 per cent from 8.25 percent.

The central bank's decision is expected to push commercial banks to increase their lending rates, including those on housing mortgages, by at least half a percentage point, bankers and experts said.

"At the outset, half a per cent (point) increase in lending rates looks likely," said Keky Mistry, managing director of HDFC Ltd, the country's largest housing finance company. "We will take a decision next week," he said.

Vijaya Bank CMD Prakash P Mallaya said he expected similar raises.

If that happens, the monthly installment on a Rs 20-lakh loan with a 20-year tenure will increase by Rs 676. That means in a full year you will have to shell out Rs 8,112 more in interest.

Some experts, however, said home loan rates could go up by as much as 1 percentage point -- although that is unlikely to come in one shot -- because there would be pressure on banks to increase deposit rates.

Higher deposit rates coupled with a fall in liquidity will push up the cost of funds for banks, which, in turn, will try to pass it on to consumers. The pinch may get even bigger.