The Reserve Bank of India (RBI) in an attempt to tame inflation has started a rate hike cycle.
The current inflation in the country has been well above the inflation target of the country. RBI in an attempt to control the surging inflation has started a rate hike cycle.
Since the start of the year, RBI has increased the interest rates twice, – April 2022 & June 2022 – taking the repo rates from 4.00% to 4.9%. Here is a brief history of RBI rate hikes:
| Updated On | Repo Rate |
| 8 June 2020 | 4.90% |
| 4 May 2020 | 4.40% |
| 22 May 2020 | 4.00% |
| 27 March 2020 | 4.40% |
| 04 October 2019 | 5.15% |
| 07 August 2019 | 5.40% |
| 06 June 2019 | 5.75% |
| 04 April 2019 | 6% |
| 07 February 2019 | 6.25% |
How Does RBI Policy Rate Impact Consumers
- Retail loans are mostly linked to the repo rate, hence any increase in repo rates translates into an increase in all loans linked to it.
- An increase in rates sucks out liquidity from the market. This makes it difficult for retail borrowers to access money easily.
- At the same time, there is another important parameter called Cash Reserve Ratio (CRR) which is responsible for determining the borrowing costs of banks.
- When CRR goes up, and borrowing becomes expensive in the private market, banks raise interest rates in order to make FD a lucrative option for retail investors and attract low-cost capital.
Are further rate hikes expected?
Yes. RBI is expected to increase the rate hike by 35 bps. This comes after a 40 and 50 bps increase in earlier policies. This signifies that the RBI is no longer going to do an outsized increase in rates, but a more data-dependent and based on global inflationary trends.
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