The Reserve Bank of India (RBI) in an attempt to tame inflation has started a rate hike cycle.
The current inflation in the country has been well above the inflation target of the country. RBI in an attempt to control the surging inflation has started a rate hike cycle.
Since the start of the year, RBI has increased the interest rates twice, – April 2022 & June 2022 – taking the repo rates from 4.00% to 4.9%. Here is a brief history of RBI rate hikes:
|Updated On||Repo Rate|
|8 June 2020||4.90%|
|4 May 2020||4.40%|
|22 May 2020||4.00%|
|27 March 2020||4.40%|
|04 October 2019||5.15%|
|07 August 2019||5.40%|
|06 June 2019||5.75%|
|04 April 2019||6%|
|07 February 2019||6.25%|
How Does RBI Policy Rate Impact Consumers
- Retail loans are mostly linked to the repo rate, hence any increase in repo rates translates into an increase in all loans linked to it.
- An increase in rates sucks out liquidity from the market. This makes it difficult for retail borrowers to access money easily.
- At the same time, there is another important parameter called Cash Reserve Ratio (CRR) which is responsible for determining the borrowing costs of banks.
- When CRR goes up, and borrowing becomes expensive in the private market, banks raise interest rates in order to make FD a lucrative option for retail investors and attract low-cost capital.
Are further rate hikes expected?
Yes. RBI is expected to increase the rate hike by 35 bps. This comes after a 40 and 50 bps increase in earlier policies. This signifies that the RBI is no longer going to do an outsized increase in rates, but a more data-dependent and based on global inflationary trends.
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