RBI Hiked Repo Rates by 40 Basis Points

BANKING AND ECONOMY

The Reserve Bank of India (RBI) hiked the repo rate by 40 bps up to 4.40% from 4% earlier. These hikes will come into effect immediately citing persistent inflationary pressures in the economy. The repo rate remains unchanged since May 2020.

The Cash Reserve Ratio (CRR) has been hiked by 50 bps to 4.50% which will exert further upward pressure on interest rates which will be effective from May 21. 

This is RBI's first increase in borrowing rates since August 2018. The borrowing rates were increased with the aim of strengthening and consolidating medium-term economic growth prospects.

Due to these hikes, the borrowers should pay the increasing EMIs, and FD investors can hope for better returns on new FDs. Other rates fixed by the RBI are Standing Deposit Facility (4.15%), and Marginal Standing Facility (4.65%).

As per the global indicators, the retail inflation in the US has risen to 40-year higher to 8.5% in March. The retail inflation in India for March 2022 has risen to 6.95%.

The core mandate of the central bank is to manage retail inflation within the range of 2-6%. In monetary policy, which was held in April 2022, the central bank’s primary focus was to ensure that inflation remains within the target going forward while supporting growth.

 

   Important points for the exam:

  • The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously voted to hike Repo Rates (RR) and Cash Reserve Ratio (CRR) which comes into immediate effect.
  • The repo rate was increased by 40 basis points and CRR increased by 50 points. The RR and CRR were fixed at 4.40% and 4.50% respectively.
  • This is RBI's first increase in borrowing rates since August 2018. 
  • Other rates fixed by the RBI are Standing Deposit Facility (4.15%), and Marginal Standing Facility (4.65%).
  • Due to these hikes, the borrowers should pay the increasing EMIs and FD investors can hope for better returns on new FDs.

   Facts to know:

  • RBI was established on 1 April 1935, through the RBI Act, 1934.
  • Governor of RBI: Mr.Shaktikanta Das.
  • Headquarters of RBI: Mumbai, India.
  • RBI is wholly owned by the Government of India.

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