RBI again hikes repo rate by 0.50 percent; loans to be expensive and EMIs to increase

Governor Shaktikanta Das on Wednesday announced that the central bank has raised key rates by 50 bps to 4.90 percent. Repo rate remains below pre-pandemic level, said RBI Governor Shaktikanta Das.

An increased repo rate by 0.50 percent will result in loans becoming expensive which will further mean that EMIs will increase.

Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

The monetary policy committee vote was unanimous and has decided to keep the stance withdrawal from accommodative.

"We are facing new challenges with every passing day due to the war. War in Europe is lingering, challenges accentuating supply chains. Recovery is gaining momentum despite the pandemic and war. On the other hand, inflation has become global" said MPC Chairman Shaktikanta Das.

The central bank has decided to raise MSF Rate & Bank rate to 5.15% from 4.65%, announces Governor Das.

Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.

Bank rate is the rate charged by the central bank for lending funds to commercial banks.

Bank rates influence the lending rates of commercial banks. Higher bank rates will translate to higher lending rates by the banks.

Last month, RBI raised the repo rate or short-term lending rate by 40 basis points in an off-cycle monetary policy review to check spiraling inflation.