Friday, 12 Sep, 2025
By: Yash Gupte
The Reserve Bank of India’s (RBI) monetary policy committee (MPC) on Friday hiked the repo rate/ lending rate by 50 basis points to 5.40% with immediate effect. The decision was announced by Shaktikanta Das, the governor of RBI in a press conference held on 5th August 2022.
The Reserve Bank of India’s (RBI) monetary policy committee (MPC) on Friday hiked the repo rate/ lending rate by 50 basis points to 5.40% with immediate effect. The decision was announced by Shaktikanta Das, the governor of RBI in a press conference held on 5th August 2022. The RBI has hiked the repo rate for the third time in the current financial year. Prior to this, the RBI had raised the repo rate by 40 basis points in an off-cycle meeting in May 2022 and by 50 basis points in June. The market experts had predicted the repo rate to be increased by at least 35 basis points in the monetary policy committee meeting. While deciding the repo rate, the RBI considers the retail inflation or the consumer price index (CPI) as one of the most important factors. The CPI for June stood at 7.01%. The decision has been taken in response to the high inflation faced by the Indian economy in the recent months in the current financial year. Speaking about inflation, Shaktikanta Das said that the retail inflation remains uncomfortably high and noted that inflation is expected to remain above 6%. There were some positive outcomes prior to the RBI’s MPC meeting on Friday as the Rupee gained 46 paisa to 78.94 against US Dollar and also the NSE Nifty 50 index was up 0.23% at 17, 421.35 and the S&P BSE Sensex rose 0.21% to 58, 418.86. The RBI governor has observed that this decision is tend to counter the rising retail inflation and ensure macroeconomic stability.
The increase in Repo rate by the RBI typically results in higher funding costs for lenders like banks. As a result of the increase, the banks will pay more for the money they borrow from the RBI. Banks pass on the cost to borrowers as a result by increasing their own loan interest rates, which raises the cost of equated monthly installments (EMIs). This will result in rise of interest rates on home loans for both new and current customers. India is not the only country when it comes to rising inflation and increasing repo rates. Even USA and UK have been increasing their lending rates in the past few months.
The chart given below compares the lending rates in USA, UK and India for the months of May, June, July and August.
Source: Reserve Bank of India
The lending rates in all the three countries have been rising since May 2022. The central banks of USA, UK and India have taken the decision of increasing the repo rates/ lending rates by different basis points in order to tackle the rising inflation due to the rise in crude oil barrel prices and the disruption in supply chains caused by the Russia-Ukraine war. USA has the highest lending rate as compared to UK and India as USA has been dealing with high inflation for a long period of time and the increase in lending rate was inevitable for the US economy. Though the rising lending rates are tend to bring relief for the economies worldwide, they are tend to make the loans and EMIs less pocket friendly for the borrowers.
