Repo rate in India back at pre-pandemic level

Wednesday 10th August 2022 06:55 EDT

The costs of borrowings for businesses and individuals, including home and auto loans, will increase as the Reserve Bank of India has hiked its repo rate by 50 basis points from 4. 9% to 5. 4%. With this increase, RBI governor Shaktikanta Das has rolled back all the rate cuts announced during the pandemic and taken rates to the prepandemic level.

A 50-basis point, or half-a-percentage point increase in the home loan rate will inflate the EMI. Repo rate is the rate at which the central bank lends money to banks and is the benchmark for nearly 40% of the loans, which will result in automatic readjustment. While the rate hike was on the higher end of market expectations, what helped market sentiment was that the RBI retained its 2022-23 projections for both GDP growth (7. 2%) and inflation (6.7%).

RBI's rate hike comes when crude oil and international commodity prices have shown signs of softening in the wake of fears of a recession in the West. RBI's action, however, appears to have been influenced by the volatility in the rupee, which recently hit a low of 80 versus the US dollar. The central bank has expended over $40 billion of its reserves defending the rupee. With this hike RBI has kept up with many other central banks that have increased rates far more than in India.

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