REPO RATE HIKE

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Context:

• The Monetary Policy Committee (MPC) of the Reserve Bank of India hiked the Key Policy Rate-the Repo rate or the rate at which the RBI lends funds to banks, by 25 basis points to 6.50 per cent in a bid to rein in retail inflation.

Read about REPO Rate: https://www.iasgyan.in/daily-current-affairs/repo-rate#:~:text=THE%20RECENT%20SUDDEN%20RISE%20IN,rate%20now%20stands%20at%205.40%25

Recent Hike in Repo Rate:

• The Reserve Bank of India (RBI) has hiked the repo rate for the sixth time in a row, by 25 bps to 6.50% with immediate effect.
• After the RBI's latest repo rate hike on February 8, banks are expected to raise interest rate in retail loans.

Implications

• With the raising of key benchmark interest rate by 25 basis points to 6.5 percent, there will be a direct impact on both bank depositors and new loan borrowers.
• Since the Repo rate is hiked the banks will now have to pay a higher amount of interest to the RBI which in turn shall be collected from the retail/ corporate borrowers of the banks. This would result in higher interest outflow on loans taken from the banks. Thus, the loans in general will become costlier by 1-2%.
• As the repo rate rises, banks increase the interest rate on their consumer loans.

Inflation forecast:

• The central bank has lowered the inflation target for FY23 from 6.7 per cent to 6.5 per cent – which is still above the RBI’s comfort level of four percent. Inflation is expected to be 5.3 percent in FY24.
• Inflation for Q4 of FY23 at 5.7 percent as against 5.9 percent.

https://indianexpress.com/article/explained/explained-economics/reserve-bank-of-india-monetary-policy-repo-rate-decision-impact-8431120/