The Reserve Bank of India has increased the repo rate or prime lending rate by 50 basis points to 5.90 per cent, said Shaktikanta Das, RBI's governor. He said that the central bank had hiked repo rate four times since May to the recent 5.90 per cent. The recent revision of the repo rate was made to keep inflation levels within the target.
The repo rate was hiked by MPC by a majority of five out of six. In addition to the hike in repo rate, Das noted that the decision was not only prompted by the urgency to control inflation levels, but also due to the adverse action by global central banks, especially in the advanced countries.
The world has witnessed two major shocks from the COVID 19 pandemic and the Ukraine conflict. We are in the midst of a third major shock caused by monetary tightening and aggressive communication from advanced countries central banks. He said that the RBI has withdrawn from its accomodative position despite high inflation and apprehensions of a global recession.
This revision came after analysts predicted a 50 bps hike in repo rate due to global situations. According to a recent Business Today poll, the majority of respondents were expecting the central bank to go for a 50 basis points hike. Few people had not anticipated a hike at all.
With a hike in repo rate, EMIs for home, car and personal loans are likely to go up. As the cost of borrowing goes up for banks, home, car and personal loans will become more expensive, leading to a rise in lending rates.
In a recent repo rate hike, Adhil Shetty, CEO of Bankbazaar.com, told Business Today: "It is advisable to pre-pay in any way to control your interest outflow. In the short term, borrowers may feel the pinch, but they will be better off once the rate cycle reverses. The Monetary Policy Committee MPC decision was announced by Shaktikanta Das and Indian markets opened on a watchful note. The Sensex opened at 56,251, down 0.28 per cent. Nifty 50 opened at 16,818. The Indian rupee rose 14 paise to 81.59 against the US Dollar in early trade.