The RBI’s move to hike the repo rate may augur well for depositors who park their money in savings accounts and through fixed deposits (FDs).
In a first-rate hike since August 2018, the Reserve Bank of India (RBI) on Wednesday raised the benchmark lending rate or repo rate by 40 basis points (bps) to 4.40 per cent. This was also the first instance of the Monetary Policy Committee (MPC) making an unscheduled increase in the repo rate.
The decision was taken to contain inflation that has remained stubbornly above the target of 6 per cent for the last three months. However, the RBI’s move will have an impact on those who have borrowed home loans and auto loans.
Meanwhile, the MPC headed by RBI Governor Shaktikanta Das also raised the amount of deposits banks are required to maintain a cash reserve by 50 bps to 4.5 per cent to suck out Rs 87,000 crore of liquidity from the banking system. The CRR hike will be effective from May 21.
WHAT IS REPO RATE
The’REPO’ means ‘Repurchasing Option’ or the ‘Repurchasing Agreement’. The repo rate denotes the rate at which banks borrow from the RBI. The repo rate is considered as one of the key tools of the RBI to keep inflation under control.
HOME LOAN, CAR LOAN EMIS
When the RBI cuts the Repo Rate, it means that the cost of borrowing will be less for commercial banks. So, when the repo rate is decreased, banks generally offer lower interest rates against loans from customers.