RBI Repo Rate Hike: RBI's whip on inflation again, repo rate increased by 0.50 percent, loan will be expensive, EMI will increase

RBI Repo Rate Hike: Despite all the efforts, due to the ever-increasing inflation in the country, the Reserve Bank (RBI) has once again announced to increase the repo rate (RBI Repo Rate Hike). The Reserve Bank of India, in its policy review on Friday, has increased the key policy rate, the repo rate, by half a percentage point. SDF has been increased from 5.15 percent to 5.65 percent. This is the fourth straight hike by the RBI after it started raising interest rates this year.

The Monetary Policy Committee (MPC) in its meeting today has decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.90 per cent. Let us tell you that after an unexpected increase of 40 basis points in the repo rate in May, the RBI has increased the repo rate by 50 bps in the months of June and August. In this way, this is the fourth consecutive increase made by RBI. 

Since May 2022, the Reserve Bank has increased the repo rate by 190 basis points (1.90 per cent). The increase in the repo rate by the RBI will increase the EMI of other loans like your home and car loan.

What did RBI governor said

RBI Governor Shaktikanta Das while announcing the hike in repo rates said that the Monetary Policy Committee has decided to hike by 50 basis points. After this decision, now the repo rate has increased from 5.40 percent to 5.90 percent. 

The RBI Governor said that many countries of the world are increasing rates sharply. One after another increase is taking dangerous form. Due to this there is a fear of slowing down of the economy. But inflation remains a matter of concern. Bonds, equity tax currency are all under pressure these days.

Shaktikanta Das said that many sectors of the economy are seeing improvement. However, he also indicated that core inflation is expected to remain at higher levels. Demand continues to improve gradually and investment is seeing a pick-up. 

Let us tell you that after May, there has been a fourth consecutive increase in the repo rate. Reserve Bank Governor Shaktikanta Das informed about the increase in the repo rate today after the meeting of the Monetary Policy Committee in September. 

World's other central banks have increased

The RBI started raising policy rates in May in view of rate hikes by other central banks of the world. Retail inflation in India has been running above the Reserve Bank of India's upper tolerance band of 6 per cent in August as well. The country's retail inflation consumer price index (CPI) broke out of a three-month downtrend and stood at 7.00 per cent in the month of August. In July it was 6.71.

Given these figures, the RBI had no option but to increase the repo rate.

The government has ordered the central bank to maintain retail inflation at 4 per cent with a margin of 2 per cent for a period of five years ending March 2026.

Tension of loan and EMI will increase, FD ones bat-bat

Home loans, auto loans and other banking loans will become more expensive in the coming days due to the increase in the repo rate. Whenever RBI hikes the repo rate, banks start increasing their interest rates. After the increase of 50 basis points in the interest rates today, the loan rates can be increased further by the banks. However, people investing in FD can get the benefit of increased interest rates. 

What is repo rate

Repo rate is the rate at which RBI gives loans to commercial banks. Its full name is Reproduction Rate, but in short it is called Repo Rate. Lower repo rate means that all types of loans from the bank will become cheaper. 

With the lower repo rate, home loans, vehicle loans and personal loans all become cheaper. Due to its increase, all types of loans become expensive.

What is SLR

Statutory Liquidity Ratio or SLR is a financial term. All banks have to adhere to this term. This shows how much amount the bank will keep with the RBI in cash, gold reserves, PSU bonds and security before giving loans or credits to the general public or corporate world. 

With SLR, the cash flow in the market is controlled. Simply put, the Reserve Bank does the work of cash management through this. If there is less cash in the market, then the bank will have less money to give loans. This means that the loan rate will increase.