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

Uttarakhand: Private Medical College Hikes Fees By 400%, Students And Parents Protest

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

Diet Menstruation

Good To Know: How Your Diet Affects Your Periods

My Story Vietnam

Life Story: The People Here Appreciate You For Who You Are, They Never Judge You Based On Where You’re From

Jeans

It Takes Upto 10,000 Litres Of Water To Make One Pair Of Jeans, Know How It Affects The Environment

Adulterated Milk

The Adulteration Of Milk And How It Affects Your Health, Know About It In Detail

Latest on The Logical Indian

News

Amidst Severe Debt Burden, Punjab Govt To Purchase 400 Luxury Cars For Ministers, Officials

News

Police Officer Thrashed By BJP Councillor At A Restaurant, Incident Captured In CCTV Camera

News

Universities To Lose Affiliation If They Retain Students’ Original Documents During Admission: UGC

Get Inspired

Indian-American Woman Honoured With Presidential Award By White House For Her Work Against Human Trafficking

News

Amritsar Train Tragedy: Punjab CM Orders Magisterial Inquiry Into The Accident Which Killed Over 60

News

Areas Surrounding Siang River Alerted Of Flash Floods After Formation Of Artificial Lake In Tibet

x

Stories that deserve attention, delivered to your inbox!

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