Reserve Bank of India has increased the repo rate or prime lending rate by 50 basis points to 5.90 percent, RBI Governor Shaktikanta Das said while announcing the decisions of the Monetary Policy Committee (MPC).
The central bank had hiked the repo rate four times since May to the recent 5.90 percent. The recent revision in the repo rate has been made to keep inflation levels within the target. The key lending rate set by the central bank is the highest it has been in three years.
MPC decided to hike the repo rate by a majority of five out of six. While announcing the hike in repo rate, Das noted that the decision was not only prompted by the urgency to control inflation levels but also due to the adverse action by global central banks, especially that of the advanced countries.
Das underlined, "The world has witnessed two major shocks– COVID-19 pandemic and the Ukraine conflict. Now, we are in the midst of a third major shock arising from monetary tightening and aggressive communications from advanced countries’ central banks." He further announced the RBI's withdrawal from its accommodative stance, adding the economy has remained resilient despite high inflation and apprehensions of a global recession. This revision comes as analysts predicted a 50 bps hike in repo rate due to global situations.
With a hike in repo rate, EMIs for home, car, and personal loans are also likely to go up. Home, car, and personal loans will become more expensive as the cost of borrowing will go up for banks, leading to a rise in lending rates.
Moreover, Indian markets opened on a watchful note ahead of the Monetary Policy Committee (MPC) decision announcement by Shaktikanta Das. Sensex opened 0.28 percent down at 56,251.19 whereas Nifty50 opened at 16,818.10. Indian Rupee, on the other hand, rose 14 paise to 81.59 against the US Dollar in early trade.
