In its bi-monthly monetary policy held on Wednesday, the Reserve Bank of India (RBI) hiked the repo rate by 25 basis points. With the announcement, the repo rate now stands at 6.25%. Along with this reserve repo rate has also been hiked to 6%.
The repo rate is the rate of interest at which the RBI loans money to other banks. The repo rate then determines the rate of interest at which the banks loan money to their customers. A hike in the repo rate will mean an increase in the EMIs of people who have borrowed money at fluctuating rates.
Now that the RBI has announced a hike in repo rate, banks, too, could start raising their marginal cost-based lending rates (MCLR) soon. Many banks have already started raising rates over the past week. State Bank of India (SBI), the country’s largest lender, has already hiked the interest rate twice this year.
The RBI meanwhile projected inflation for 2018-19 at 4.8- 4.9% in the first half and 4.7% in the second half of the year. Its GDP projection was 7.5-7.6% for the first half and 7.3-7.4% in the second half.
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