RBI hikes repo rate by 50 bps to 4.90%; Loans get costlier

In the latest move, the Central bank of India, the RBI has hiked the repo rates by 50 basis points resulting in a total hike of repo rates from 4.4 percent to 4.9 percent. Reserve Bank of India Governor Shaktikanta Das said that the government has decided to hike the repo rates in order to take steps to control inflation. With the rise in base rates, interest rates on home and auto loans will also go up, NDTV reported.

The latest policy rate hike comes after the Reserve Bank announced a 40 bps increase in repo rate in an off-cycle policy move in May. Unveiling the third monetary policy for the current fiscal, Das said the Indian economy remained resilient, and the central bank will continue to support growth. 

For the unversed, a Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. The Repo rate is used by monetary authorities to control inflation. 

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The repo rate has been hiked for 2nd time in a row by the RBI in a bid to tame the soaring inflation. Last month, MPC raised the key policy rate (repo) by 40 basis points to 4.4 percent to tame the rising inflation. It was the first-rate hike after August 2018, Times Of India reported. Since May 2020, the RBI’s Repo rate has remained the same at a rate of 4%. This was the interest rate at which the Reserve Bank of India provides short-term money to Indian banks.