Explained: How RBI's rate hike will impact you?

By Gargi Chaudhry | First Published May 4, 2022, 9:11 PM IST

The Reserve Bank of India on Wednesday hiked its main lending rate by 40 basis points to 4.40 percent with immediate effect on Wednesday. In addition, the central bank increased the cash reserve ratio by 50 basis points. The monetary policy committee (MPC) made the decision during an off-cycle meeting with the central board on May 2-4.

Asianet Newsable reached out to some bankers to speak them about the update:

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Senior Bank official from PSU Bank

The RBI’s move has confirmed that there has been too much inflation in the market. With the Repo rate being increased, one can expect that housing loans and car loans will be increased. With this move, the EMIs will also increase for the citizens. Now, if the bank has to take funds from the central bank, the cost of the funds would increase. Apart from the Repo rate, CRR has also increased, which would soak in the liquidity which has increased the inflation the market.

Another senior bank official from government bank

With the RBI’s move, the borrow and deposit rates both will increase. This step was done as the inflation has been gradually increasing beyond a certain level. The rise of inflation was majorly due to COVID scenario, welfare schemes due to which easy money and inflow of hard cash increased. He further said that the central bank has increased the CRR which would help to reduce the disposable money in the market. The RBI is trying to take all possible steps to bring down inflation.

With this move, RBI has started changing its stance from outright Accommodative to Reasonable Tight Monetary policy to contain the inflation which may become tough to handle in view of the prevalent international development including the spiralling crude prices.

Also Read | RBI hikes repo rate by 40 basis points to 4.40 per cent

RBI Governor Shaktikanta Das stated that the decision was made in response to growing inflation, geopolitical concerns, high crude oil prices, and global commodity shortages, all of which have damaged the Indian economy. This was the first policy rate rise since August 2018, raising the cost of borrowing for both corporations and individuals. The most recent unexpected increase totally reverses the Covid-supported off-cycle rate drop in May 2020.

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