Mumbai: The Monetary Policy Committee (MPC) of the Reserve Bank of India on Wednesday hiked the key policy rate, the Repo rate or the rate at which the RBI lends funds to banks, by 25 basis points to 6.50 per cent.
Four out of six members of MPC have decided to go ahead with this hike in the repo rate, RBI Governor Shaktikanta Das said on Wednesday.
What is the repo rate?
It is the interest rate charged by the RBI when commercial banks borrow by selling their securities to the central bank. This interest rate is called the repo rate in the monetary policy. The repo rate, therefore, influences rates of interest on all loans such as personal loans, car loans, housing loans, working capital, among others.
Currently, the repo rate per the Monetary Policy 2023 is 6.25 per cent.
What happens when RBI hikes the repo rate?
When RBI hikes the repo rate, the cost of borrowing increases. When of cost of borrowing increases, all types of loans become expensive.
The Reserve Bank has increased the short-term lending rate by 225 basis points since May last year to contain inflation, mostly driven by external factors, especially global supply chain disruption, following the Russia-Ukraine war outbreak.