RBI Hikes Repo Rates By 50 Basis Points In Monetary Policy Meet Of June 2022

As was widely expected, the Reserve Bank of India today hiked repo rates or interest rates by 50 basis points in its monetary policy meet of June 2022 to 4.90%. The RBI's Monetary Policy Committee, which met over the last 2-days to deliberate on the quantum of hike, decided on the 50 basis points hike. Repo rates are the interest rates at which the RBI lends money to banks. While interest rate hikes by the country's central bank was almost a given, analysts, consumers and investors were awaiting the quantum of the hike. In general analysts were expecting a hike between 25 basis points to 50 basis points.

"Inflation has steeply increased above tolerance levels," RBI Governor, Shaktikanta Das said while delivering the policy.

Today's RBI repo rate hike comes on the back of a 40 basis points hike by the RBI in the month of May 2022.

One of the reasons for the back to back hike in interest rates by the RBI is that consumer price inflation has been spiralling out of control. The consumer price inflation reached nearly an 8-year high of 7.79% in April 2022.

On the other hand, wholesale inflation reached a record high range of 15.1% in the same month. Price stability it seems has assumed significance for the RBI, given that inflation is now way beyond its targeted range of 6%. Earlier in May, the RBI has also announced a CRR rate hikes.

What is the impact of today's repo rate hike on loans and deposits?

Since the last hike in May 2022, banks have increased their lending rates and deposit interest rates. With today's hike by the RBI, deposit rates and also lending rates are expected to go higher by banks and NBFCs. The worries of a sharp increase rate hikes, is that it tends to impact economic growth, as investors borrow less. Be prepared to now pay more for home loans, car loans, personal loans and gold loans. However, what is good for individual investors, who look to fixed deposits as their source of income is that interest rates would now move higher. So in short, loans could become expensive after today's hike, while fixed deposit interest rates could trend higher.