RBI’s repo rate hike impact on your banks

The Reserve Bank of India (RBI) recently hiked the repo rate by 35 bps, the fifth such increase in 2022. The repo rate currently stands at 6.25 per cent. The first time RBI hiked the repo rate was in May when the central bank’s rate setting panel unanimously hiked the benchmark lending rate by 40 bps. This was followed by an increase of 50 bps each in June, August and September. In total, the RBI has hiked the rate by 190 bps.

Prior to May 2022, RBI had cut the rate by 40 bps in May 2020 when the repo rate was at 4 per cent.

According to experts, the rate hike was done to tackle record high inflationary numbers.

“This aggressive rate hike stance was done in order to tackle record high inflationary numbers. The inflationary pressure, global geopolitical uncertainties, covid restrictions, heightened volatility levels,” said Tanvi Kanchan, Head of Corporate Strategy, Anand Rathi Shares and Stock Brokers.

Experts have predicted that RBI will hike the rates to balance issues of liquidity, capital and inflation.

“With recession trends looming in developed economies, RBI might provide a stop to interest hike to provide for economic growth. However, with this threat, the increased threat of inflation persists. We might see another increase in repo rate to balance out the issues of liquidity, capital and inflation,” said Ashish Jain.