Repo Rate Increased To 4.90%, EMIs Likely To Go Up

Story Highlights
  • Last month, the MPC raised the repo rate by 40 basis points
  • RBI wants to ensure consumer price index-based inflation remains at 4 per cent
  • Prior to Wednesday's announcement, the RBI Governor indicated rate hike

New Delhi: The Reserve Bank of India on Wednesday announced a hike in the repo rate by 50 basis points to 4.90 per cent. The decision was announced after three-day deliberations of the Monetary Policy Committee (MPC). Last month, the MPC raised the key policy rate (repo) by 40 basis points to 4.4 per cent to tame the rising inflation. It was the first-rate hike since August 2018.

Repo rate or repurchasing Option’ rate is the rate at which the RBI lends money to commercial banks. Repo rate is considered as important tool to control inflation. Consequently, the standing deposit facility SDF rate stood adjusted to 4.65 per cent and the marginal standing facility, MSF rate and bank rate, to 5.15 per cent, the RBI Governor said.

The hike in interest rate comes as consumer price index (CPI) based retail inflation, which the Reserve Bank of India factors in while arriving at its monetary policy. Inflation is rising mainly on account of surging commodity prices, including fuel. The ongoing Russia-Ukraine war has further pushed up commodity prices across the globe.

The wholesale price-based inflation has remained in double digits for 13 months and touched a record high of 15.08 per cent in April. The government has tasked the Reserve Bank to ensure consumer price index-based inflation remains at 4 per cent with a margin of two per cent on either side.

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