RBI Announces 50 bps Hike In Repo Rate

In order to contain the rising inflation in India, the Reserve Bank of India (RBI) has announced a 50 basis points hike in the repo rate. Repo is the rate at which the central bank lends short-term funds to banks.

One bps is one-hundredth of a percentage point. With the latest rate hike, the repo rate now stands at 5.9 per cent, the highest level since April 2019 – from 5.40 per cent. Announcing the policy decision, RBI Governor Shaktikanta Das highlighted the worry of the rate-setting panel on inflation and said the central bank is watching the price situation closely.

The MPC has increased the policy repo rate by 140 basis points since May to quell inflationary pressure.  The consumer price index (CPI) based retail inflation, which had started showing signs of moderation since May, has again firmed up to seven per cent in August. The RBI takes into account retail inflation while framing its bi-monthly monetary policy. In the backdrop of the repo rate hike, home, personal and car loans are expected to get costlier.

The repo rate increase would lead to longer tenure or higher EMI for home loan borrowers. The banks could increase the loan tenure so that the EMI remains unchanged, but the number of years for payment increases.  According to industry experts, banks and other financial institutions increase their lending rates as their borrowing cost increases, making EMIs costlier.

As the repo rate increases, your car loan would also go up. In the case of personal loans, public-sector banks (PSUs) offer loans at floating interest rates, while private banks offer at fixed interest rates. Hence, if your personal loans are based on floating interest rates, the EMIs would also go up. Therefore, you need to prepare accordingly to handle EMIs.