By hiking the Repo rate and CRR, the RBI is aiming to keep inflation – which is already close to 7 per cent — at its desired level and control and monitor money flow into the banking system.
Bringing an end to the low interest rate regime, the Reserve Bank of India (RBI) on Wednesday jacked up the Repo rate, the main policy rate, by 40 basis points to 4.40 per cent and the cash reserve ratio (CRR) by 50 basis points to 4.50 per cent to bring down the elevated inflation and tackle the impact of geopolitical tensions.
In an unscheduled meeting of the Monetary Policy Committee, the central bank, however, retained the accommodative monetary policy. The sudden RBI move — the first hike after August 2018 — is expected to push up interest rates in the banking system. Equated monthly instalments (EMIs) on home, vehicle and other personal and corporate loans are likely to go up. Deposit rates, mainly fixed term rates, are also set to rise.
By hiking the Repo rate and CRR, the RBI is aiming to keep inflation – which is already close to 7 per cent — at its desired level and control and monitor money flow into the banking system.
Unveiling the policy, RBI Governor Shaktikanta Das on Wednesday said the hike in Repo rate and cash reserve ratio was aimed at reining in elevated inflation amid the global turbulence in the wake of the Ukraine war.
Analysts are now expecting more rate hikes by the RBI in the coming months. “The sharper than expected rate increase by the RBI today paves the way for a more aggressive rate hike cycle than we earlier expected,” said Abheek Barua, Chief Economist, HDFC Bank.
SBI and many banks recently hiked the MCLR (marginal cost of funds-based lending rate) points anticipating a rate hike.
