RBI Hikes Repo Rate By 25 Basis Points; Know How It Affects You

The Logical Indian India

June 8th, 2018 / 3:52 PM

Image Credits: Economic Times, Chartered World

The RBI Monetary Policy Committee (MPC) on Wednesday increased the repo rate by 25 basis points, thereby pushing the new rate to become 6.25 %. This comes as a part of their Second Bi-Monthly Monetary Policy Statement for 2018-19.

This is the first hike in the last four years since NDA Government came to power in 2014. Business Today reported that even though all the six members of MPC voted in favour of the hike, the deliberation was longer than usual. This time they took three days to reach a conclusion instead of two.



repo rate
RBi’s June 6 notification on Repo rate |RBI

With this move, the RBI has taken a back step on its rate-cutting policy that the apex bank had adopted since January 15, 2015.

Reportedly, the MPC voted in favour of the rate hike after taking into consideration the rise in inflation which might come as a result of a rise in international crude oil prices.


What Does The Hike Mean?

For the common man, this might come as unpleasant news as banks may consider increasing lending rates following the rise in repo rate. Nationalised banks like SBI, Punjab National Bank and Bank Of India had already increased their lending rates last week.

This means that borrowers might have to pay a higher rate of interest for their bank loans. For most parts, whenever, the RBI has altered repo rates, it is the consumers who had to bear the burden.


Why The Hike?

The reasons for the hike is primarily due to rising inflation which comes as a result of the unstable global crude oil prices and the dismal conditions of the Rupee-Dollar nexus.

Consumer price inflation or CPI was 4.6% in April 2018, which is higher than RBI’s 4% target since November 2017. However, the CPI is still well within the upper limit of 6%.

Not only this, but the central bank has once again changed its inflation forecast from 4.7-5.1% for the first half and 4.4% in the second half to 4.8-4.9% and 4.7%, respectively. The MPC report also said, “Crude oil prices have been volatile recently, and this imparts considerable uncertainty to the inflation outlook — both on the upside and the downside.”


repo rate
Projection of CPI inflation |RBI

What Is Repo Rate?

Repo rate is the rate at which banks borrow money from RBI by selling their surplus government securities. Also known as Repurchased Rates, these loans can be short or can be up to 2 weeks long.

For example, if the Repo Rate is 6% and if a bank takes a loan of Rs. 1000 from RBI, they will have to pay an interest of Rs. 60 to RBI.

This is also one of the tools that RBI uses to tackle probable inflation and put a check on the cash flow in the economy.


Contributors

Edited by : Abhinav Joshi

Share your thoughts..

Related Stories

Inflation Causes

TLI Explains: India’s Inflation At 5.77%, A Four Year High

Provident Fund Interest Rate At Five-Year Low, Reduced To 8.55%

RBI Cuts Repo Rate To 7-Year Low Of 6%, Becomes First In Asia To Cut Rates This Year

SBI Cuts Interest Rate

For First Time In 6 Years, SBI Cuts Interest Rate On Savings Account Deposits; Read To Know

Now Common Man To Get Less Interest; Centre Slashes Interest Rates On Small Savings

After Long Suspense, Urjit Patel Announced The Next RBI Governor. Know About Him

Latest on The Logical Indian

World Affairs

Kofi Annan, Former UN Secretary General And Nobel Laureate Passes Away At 80

Get Inspired

Kerala Floods: Journalist Cancels Daughter’s Engagement, Donates Money To CM Relief Fund

News

Former Cricketer Imran Khan Becomes PM of Pakistan, Takes Oath Today

Get Inspired

Kerala Flood Heroes: Indian Navy Captain P Rajkumar Rescues 26 People, Commander Vijay Airlifts A Pregnant Woman To Hospital

News

New GDP Data Shows India Attained More Than 10% Growth Twice During Dr Manmohan Singh’s Tenure

News

Major Aditya Kumar, Rifleman Aurangzeb Honoured With Shaurya Chakra On Independence Day

x

Stories that deserve attention, delivered to your inbox!

Handpicked, newsworthy stories which deserve the attention of a rational generation.