New Delhi: In a move that will raise borrowing costs for corporates and individuals, the RBI on Wednesday hiked the benchmark lending rate by 50 basis points (bps) to 4.90 percent to contain inflation that has remained stubbornly above the target of 6 percent for the last three months.

         Last month, the RBI took an unscheduled decision thereby increasing the repo rates by 40 bps to 4.40 percent, taking everyone off-guard. This was the first increase in the policy repo rate in nearly two years. 

         Repo is the rate at which RBI lends funds to commercial banks when needed. It is a tool that the central bank uses to control inflation. The reverse repo rate is the rate at which the RBI borrows from banks. The repo rate currently stands at 4.90 % while the reverse repo rate is at 3.35 %. Reverse repo rates has remained unchanged since May 2020.

        The central bank had last revised its policy repo rate or the short-term lending rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low of 4 percent. The six-member Monetary Policy Committee headed by Reserve Bank of India Governor started deliberations on the bi-monthly policy review on Monday. 

In a recent interview, RBI Governor said that the expectation of rate hikes in June is a "no-brainer"

   RBI's sudden repo rate hike! Here are 4 major areas that will affect the public  

      RBI took sudden to increase the repo rates by 40 bps to 4.40 %, a move that will raise borrowing costs for corporates and individuals.

     New Delhi: The Reserve Bank of India (RBI) has taken an unscheduled decision thereby increasing the repo rates by 40 bps to 4.40%, taking everyone off-guard. 

       Repo rate is the rate at which banks borrow from the RBI. The move will raise borrowing costs for corporates and individuals because it is most likely that banks are going to pass on the burden of the hike to the customers. This means that Loans and EMI will get expensive from now.

     Here are 4 major areas where the common man will be affected by RBI's sudden rate hike

   Interest on home loans

   This rise in interest rates will ultimately impact overall acquisition cost for homebuyers - and may dampen residential sales to some extent. 

     Anuj, Chairman said, "Unfortunately, for home buyers, this hike signals an imminent end to the all-time low interest regime, which has been one of the major drivers behind home sales across the country since the pandemic began."

  Rising raw material cost to saddle residential sector.

        Rising interest rates and inflationary trends in basic raw materials in construction including cement, steel, man power salary etc. will add to the burden of the residential sector, which did significantly well in the previous quarter – Q1 2022

   Higher vehicle loans

   RBI's move to increase the repo-rate by 45 basis points will make vehicle loans expensive, said a top official of the Federation of Automobile Dealers Association. 

   While the passenger vehicle segment may be able to absorb this shock due to long waiting periods, the vehicle segment is already reeling due to an underperforming rural market, vehicle price hikes and high fuel costs. High interest rates for vehicle loan due to RBI move will be an additional blow for this segment. Certainly, this move will slow the speed of auto retail and dampen the sentiments further, news agency quoting VinkeshGulati said.

   Further rate hike looks imminent

   An SBI report has estimated that further rate hike by the RBI looks imminent. If rates are being constantly revised, it will only saddle the borrowers --meaning bigger burden of EMI.

   "With the current hike of 40 bps in repo rate to 4.40% it seems the rate cycle has made a U-turn (from the steep cuts seen in early 2020) and RBI would continue to increase the rates going forward and may reach the pre-pandemic level of 5.15% by end March 2023," the SBI report said.