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RBI hikes interest rates to pre-Covid levels; Here's how this impacts you

Reserve Bank of India's Monetary Policy Committee hikes Repo Rate by 50 bps to 5.40%. Repo rate is now back to pre-pandemic levels, the highest since August 2019

RBI hikes interest rates to pre-Covid levels; Here's how this impacts you
Mumbai, First Published Aug 5, 2022, 10:17 AM IST

Setting the tone of the monetary policy path, the Reserve Bank of India on Friday raised the interest rates by 50 basis points to 5.4 per cent with immediate effect. Friday's interest hike brought the rates to pre-Covid levels. The central bank has retained the GDP growth forecast at 7.2 per cent. The inflation is projected at 6.7 per cent for FY 2022-23 

Also Read: Indian Rupee has not collapsed, it is finding its own course: FM Nirmala Sitharaman

Announcing the Monetary Policy Committee decisions, RBI Governor Shaktikanta Das said successive shocks to the global economy are taking a toll. India is expected to be amongst the fastest growing economy in the world, he said, adding that the financial market has remained uneasy despite intermediate corrections

The hike in interest rates had been anticipated. The first time RBI hiked the interest rates was during its off-cycle monetary policy review in May, when the policy repo rate went up by 40 basis points or 0.40 per cent. To note, the repo rate is the interest rate at which the central bank lends short-term funds to banks. 

The RBI once again hiked the policy repo rate by 50 basis points to 4.90 per cent in its bi-monthly policy review in June.

Besides inflation, the RBI has been grappling with the Indian Rupee value against the US Dollar. July saw the Rupee crashing to an all-time low of over Rs 80 per dollar, which forced the central bank to use foreign reserves to prevent further damage.

How does this impact you?

An increase in the repo rate means that in the coming days, home loans, auto loans and other banking loans will become more expensive. 

In May 2022, when the RBI increased the repo rate by 40 basis points, many banks had hiked their lending rates in a hurry. 

However, there are signs that banks may increase deposit rates. That would benefit the people investing in fixed deposits.

Also Read: Indian Rupee Vs US Dollar: Can India manage the currency turmoil?

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