Bhubaneswar: For the first time in the last four years, the Reserve Bank of India (RBI) raised the lending rate or repo rate by 40 basis points (bps) to 4.40 per cent on Wednesday.
The repo rate was last increased by 25 bps to 6.50 per cent in August 2018. The last time there was a change in repo rate was in May 2020 when the lending rate was cut then and has remained unchanged since then.
RBI Governor Shaktikanta Das, in a video release, said the decision was taken in view of rising inflation, geo-political tensions, high crude oil prices and shortage of commodities globally, which have impacted Indian economy. The inflation has remained above the target of 6 per cent for the last three months.
“I would like to emphasise that the monetary policy action is aimed at containing inflation spike and re-anchoring inflation expectation. High inflation is known as detrimental to growth,” NDTV quoted Das as saying.
The Monetary Policy Committee (MPC) headed by RBI Governor also raised the amount of deposits banks are required to maintain a cash reserve by 50 bps to 4.5 per cent to suck out Rs 87,000 crore of liquidity from the banking system. The CRR hike will be effective from May 21.
The increase in repo rate will lead banks and non-banking financial companies (NBFCs) to hike lending and deposit rates. It means equated monthly instalments (EMIs) on home, vehicle and other personal and corporate loans are likely to rise.
But the RBI’s move may be gainful for depositors as banks are likely to offer greater interest rate on saving accounts and fixed deposits (FDs).
