Repo rate hiked – RBI increases repo rates which might increase further if needed.

Repo rate hike by RBI


The Reserve Bank of India (RBI) makes important monetary policies to help the economy grow and manage inflationary trends. Recently, the RBI announced changes in the repo rates, which will impact loans and deposits. Let’s have a look at the changes that RBI Made –

RBI-implemented changes

The Central Bank increased the repo rate by 35 basis points taking the existing rate of 5.9% to 6.25%. This hike came in the wake of the latest RBI meeting to discuss the inflationary trend in the economy. The regulator also emphasized that the hike is not a one-time affair. If required, the regulator might hike the repo rate again in the next meeting scheduled for 8th February 2023.

The inflation rates for November and December 2022 are yet to be published. Hence, RBI currently hiked the repo rate and is waiting for fresh data before deciding on the next hike.

Related - Here's everything you need to know about RBI's repo rate hikes

Other aspects of the RBI review

Besides the hike in the repo rate, the RBI also presented other financial details in the recent review meeting. These details pertained to the rate of inflation and the Gross Domestic Product (GDP).

According to RBI’s report, the Consumer Price Index (CPI), also called CPI inflation, has been constant since the last review meeting. It was recorded at 6.7% in the financial year 2022-23 and is expected to fall to 5% in the first quarter of 2023-24.

Regarding the GDP growth projections, RBI revised the rate and reduced it to 6.8% from the previous 7%. This reduction in GDP growth rate goes against interest rate hikes, but since inflation is a larger concern, the regulator is trying to bring it under control rather than focusing on the GDP rates.

How the market reacted to the changes?

Changes in the interest rates impact the bond market as the bond interest rates increase after a rate hike. However, since the market was already expecting a rate hike, the bond market did not experience much activity. However, the yield on 10-year G-Sec increased by 7 basis points, from 7.23% to 7.3%, because the RBI hinted at future rate hikes.

How does the hike impact you?

The repo rate is the rate at which the RBI lends funds to banks. If the repo rate increases, it becomes dearer for banks to get funds from RBI. The bank, thus, passes the increased costs to its customers, i.e., borrowers. As such, loan interest rates jump, and loans become dearer.

After the latest rate hike, floating interest rate loans will become dearer as their rates are linked to the External Benchmark Lending Rate (EBLR). For fixed-rate loans, the interest rate will increase after some time since such loans are linked to the Marginal Cost of Lending Rate (MCLR).

In the case of deposits, however, bulk and retail deposits will give higher interest rates for enhanced returns.

Debt mutual funds will also become attractive since their yield rates will increase after the rate hike.

So, understand the latest interest rate changes so you can manage your portfolio right.

Related - Check out which banks have increased their FD rates after previous repo rate hikes


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