What does hiked Repo Rate mean for you?

Business

06 Jun 2018

Know what does hiked RBI Repo Rate mean for you

After the bi-monthly review of its monetary policy, the Reserve Bank of India (RBI) today hiked the Repo Rate by 25 basis point to 6.25%.

It's the first Repo Rate hike in four-and-a-half years since the BJP-led NDA government came to power in 2014.

The country's apex bank also hiked the Reverse Repo Rate to 6% from 5.75%.

Read how will it affect you.

First off, what does Repo Rate mean?

Repo rate is the rate at which country's central bank (in case of India the Reserve Bank of India) lends money to commercial banks. The central bank uses it as a tool to control the amount of money supply in the economy and, thereby, inflation.

Reasons

If not in 4.5yrs, then why RBI hiked it now?

If not in 4.5yrs, then why RBI hiked it now?

RBI increased the Repo Rate as the retail inflation rose to 4.6% in April. The hiked Repo Rate will discourage commercial banks from borrowing from RBI, thereby reducing money supply in the economy and arresting inflation.

The second factor that contributed to RBI's decision was the higher-than-expected GDP growth rate. In the January-March quarter, the economic growth increased to 7.7%, a nearly 2-year high.

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How will the hiked Repo Rate affect the common man?

With an increase in the Repo Rate, the EMIs on your borrowings from banks, be it personal loan, car loan or home loan, will increase as the banks will pass on the burden of the increased interest rate to their customers.

Leading banks including SBI, PNB and ICICI, which were anticipating the hike, have already increased their lending rates by almost 10 basis points.

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Most asked questions

What is reverse repo rate?

What is SLR?

What is inflation?

What is CRR?

I want to take a home loan, will it be costly too?

More questions

What is reverse repo rate?

Asked 2018-06-07 16:48:56 by Anonymous -

Answered by NewsBytes

Reverse repo rate is the rate of interest at which banks deposit their surplus funds with the RBI for short periods of time. When banks have surplus funds but have no other lending or investment options, so they deposit their surplus funds with RBI. Banks earn interest on such funds from RBI.

What is SLR?

Asked 2018-06-07 16:42:16 by Anonymous -

Answered by NewsBytes

SLR is Statutory Liquidity Ratio. It is that percentage of the bank deposits that they have to invest in specified financial securities like Central Government or State Government securities. This amount is predominantly invested in government-approved securities (bonds), Gold, etc.

What is inflation?

Asked 2018-06-07 16:39:51 by Anonymous -

Answered by NewsBytes

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of the currency is falling. Central banks attempt to limit inflation and avoid deflation in order to keep the economy running smoothly.

What is CRR?

Asked 2018-06-07 16:39:16 by Anonymous -

Answered by NewsBytes

CRR is called the cash reserve ratio. CRR is a percentage of total bank deposits that banks have to maintain with the Reserve Bank of India (RBI) at all times. Banks do not have access to such amount for any economic or commercial activity.

I want to take a home loan, will it be costly too?

Asked 2018-06-07 16:38:36 by Anonymous -

Answered by NewsBytes

With an increase in the Repo Rate, the EMIs on your borrowings from banks, be it a personal loan, car loan or home loan will increase as the banks will pass on the burden of the increased interest rate to their customers.

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