The Reserve Bank of India (RBI) Governor Shaktikanta Das-led Monetary Policy Committee (MPC) raised the repo rate by 25 basis points to 6.5 percent on Wednesday, up from 6.25 percent previously. The repo rate (RR) is the interest rate at which the central bank lends money to commercial banks or financial institutions in India, whether public or private, in exchange for government securities. Das stated that four MPC members voted in favour of the repo rate revision, while two voted against it. According to the central bank, its policy stance remains focused on the withdrawal of accommodation. “The repo rate is now positive. In India, additional action is required “RBI Governor Das made the observation.
“Global economic volatility and uncertainty, as well as rising inflation, have prompted the RBI to raise the repo rate to 6.5%. The silver lining is that inflation is expected to moderate in 2024-25, with the RBI aiming to keep inflation within its target range of 4%. The smaller rate hike today can also be attributed to lower retail inflation and the US Federal Reserve slowing the pace of its benchmark interest rate increase. After three consecutive 50-bps increases, the apex bank raised the key benchmark interest rate (repo) by 35 basis points (bps) in December. Existing borrowers will be burdened by the recent increase, and new borrowers will have to borrow at higher interest rates.
It will increase the cost of retail loans such as home, auto, and personal loans, among others, and borrowers must be prepared for higher monthly EMIs or tenor extensions, or both. When the repo rate rises, banks find it more expensive to borrow from the central bank, and as a result, they frequently pass on the increased cost to their customers in the form of higher loan interest rates. It means that loan borrowers may have to pay more interest, potentially increasing their monthly payments. This can have an impact on their financial situation, especially if they have multiple loans or a limited income,” said Adhil Shetty, CEO and Co-Founder of Bankbazaar.com.