RBI (Reserve Bank of India) on Wednesday, raised its key lending rate by 40 basis points to 4.40% with immediate effect after the emergency meeting. Along with this, the Central Bank also announced a hike in the cash reserve ratio by 50 basis points. The decision was taken by the Monetary Policy Company (MPC) in the off-cycle meeting with the central board.
It is an unexpected hike by the Central Bank for the first time in almost two years since the start of the pandemic.
The Chief Economist, Head Research and REIS (Regional Economists Information System, India, JLL Dr. Samantak Das, said ━ “From a real estate point of view, this hike in policy rate is not welcome and will have a negative impact as home loan rates will increase immediately.”
Let’s find out more details about this announcement and what changes it will bring further.
- RBI Governor Shrikanta Das said the hike was taken in view of the rising inflation, geopolitical tensions, high crude oil prices, and shortage of commodities.
- This is the first hike in the policy rate since 2018, which can affect the cost of borrowing for corporates and individuals.
- Due to the Russia-Ukraine war, the price of crude oil may arise as major producing countries have imposed export restrictions.
- The Indian economy is facing spillover risks from geopolitical tensions, evaluating commodity prices, and moderating external demand.
- RBI Governor also stated that food inflation is expected to remain high as spillover from global wheat impacts domestic wheat prices.
An increase in repo rate would highly impact all categories of loans, including secured and unsecured. “All the loans that come under the repo-linked lending rate (RLLR), especially home loan and the loan against property, will now cost higher, and there are chances of increase in other loans EMI as most of the banks are already started increasing the marginal cost of funds based lending rate (MCLR) since the beginning of the fiscal year”, said V Swaminathan, Executive Chairman, Andromeda, and Apnapaisa.
All in all, the hike in the repo rate will impact the overall economy.