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RBI hikes repo rate by 50 basis points to 5.40%

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Mumbai: The Reserve Bank of India (RBI) on Friday hiked the repo rate, the interest rate at which it lends funds to banks, by 50 basis points to the pre-pandemic level of 5.40%. The repo rate hike means interest rates for home, auto and other loans will go up once again.

The central bank’s six-member Monetary Policy Committee’s decision to increase the repo rate was a unanimous one. The rate hike comes in an attempt to bring down the rising inflation rate, which has remained above 6%, the upper end of the RBI’s target for the year, since January.

“The MPC decided to focus on withdrawal of accusation to keep the inflation within the target while supporting growth,” RBI Governor Shaktikanta Das said.

The inflation based on the Wholesale Price Index (WPI) remained in double-digit for 15 months in a row, reading 15.18% in June.

The projected retail inflation rate for the fiscal is 6.7%, which suggests the MPC expect the inflation level to remain above its comfort level. The CPI-based inflation for the first quarter of the next fiscal is projected at 5%. The RBI, however, retained the GDP growth rate for the year at 7.2%.

This is the third straight increase by the RBI which takes the repo rate to the highest since 2019. The RBI had hiked the key lending rate by 40 basis points in May, followed by a 50 basis points increase in June.

Central banks globally have been raising interest rates in recent quarters in an attempt to control inflation. The Bank of England on Thursday raised its lending rate by 50 basis points to 1.75%, while last month, the US Federal Reserve effected a second straight interest rate hike of 0.75%.

 

 

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