RBI increases Repo Rate to 5.9%, fourth time in a row

The Reserve Bank of India (RBI) has raised the repo rate for the fourth time in a row, bringing it up to 5.9%.

RBI Increases Repo Rate to 6.25 percent: 5th time in a Row (December 2022)

The Monetary Policy Committee (MPC) of the Reserve Bank of India has agreed to increase the Repo Rate by 0.5 percentage points, bringing it up to 5.9 percent effective immediately. Since May 2022, the RBI has implemented a 1.9 percentage point hike in the repo rate. The Monetary Policy Committee (MPC) voted to hike the policy repo rate by a margin of five members to six members, as stated by Governor Shaktikanta Das.

As a direct consequence of this development, the rates for the marginal standing facility, the standing deposit facility, and the bank rate have all been adjusted, respectively, to 6.15 percent, 5.65 percent, and 5.65 percent.

In order to explain the rationale behind the interest rate hike, the governor claimed that the forecast for the global economy is still not very optimistic. As tighter financial circumstances continue, there is a rising concern that the economy could enter a recession. Inflation is still at levels that are unacceptably high across the board in all jurisdictions.

A sign of the long-term repercussions of the epidemic and the conflict is a mismatch between the supply of products and services and the demand for those goods and services. He asserted that the level of economic activity in India has remained stable in spite of the challenging conditions in the global economy.

Despite the fact that real GDP growth in the first quarter of the fiscal year 2022–23 came in below our projections, it is anticipated that the second half of the fiscal year will be supported by the late recovery in Kharif sowing, the comforting reservoir levels, an improvement in capacity utilisation, the buoyant expansion of bank credit, and the government’s continued emphasis on capital spending.

As a result, in order to balance their increased costs as a result of the higher repo rate, banks are likely to boost the interest rates they charge on borrowers’ loans, meaning that personal loans, mortgage loans, and other credit facilities will all face a commensurate hike in interest rates. Those with home loans with adjustable/ floating rates will be hit the hardest by this change.

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