Explained: How RBI’s repo rate hike of 50 bps will impact you & your household
Last month, the RBI increased the key interest rate by 40 basis points to rein in inflation, which has seen exponential rise in last few months.
New Delhi: The Reserve Bank of India (RBI) on Wednesday announced hike in the repo rate by 50 basis points and set the stage for another spike in home loans & EMIs.
With the Central bank raising repo rate, second time in 2 months, the common man is heading for more pressure on his livelyhood expenses.
Last month, the RBI increased the key interest rate by 40 basis points to rein in inflation, which has seen exponential rise in last few months.
Repo rate is the key interest rate that the RBI charges on commercial banks for lending money. It is considered as a key tool to contain inflation.
The fresh move by RBI was anticipated by many economic experts as the retail inflation remains abnormally high and must be brought in control, so as to not allow it to jeopardize economic growth.
What will repo rate hike mean for common man?
The second round of repo rate hike will add more burden on the common man as they will have to shell out more money for managing household expenses.
This spike will force banks & non-banking finance companies to increase their lending rates & minimum cost of funds based lending rates (MCLR) further. As the banks are imposed greater interest by RBI, they transfer it down to the common man. This in turn will lead to rise in equated monthly instalments (EMIs) of borrowers as the cost of funds will become expensive. It will impact all kinds of loans – car, vehicle or personal loans.
Will repo rate increase further?
As repo rate are hiked to deprive the markets of extra liquidity, its too early to rule out or expect another such hike.
As inflation remains persistently high over 6% (upper limit), the RBI will be walking on a tightrope to strike balance between growth & inflation. The RBI was largely expected to announce this hike, however, some believe that this may not be enough and another one may be coming in August.
RBI’s policy panel has projected 7.2% growth rate for India while National Statistical Organisation’s projection for growth is 8.7%.