The Monetary Policy Committee of the Reserve Bank of India announced a 50 basis points increase in the Repo Rate. The decision was announced in a press conference after the meeting of the Monetary Policy Committee.
This committee comprises six members and is headed by the Governor of the Reserve Bank of India. It is responsible for deciding the base interest rates that are further used to set other interest rates, which helps control the money supply in the economy.
These rates are mentioned in the Monetary Policy of RBI, which has the following objectives: Controlled expansion of bank credit, Price Stability, Promotion of fixed investment; Restriction of inventories and stocks, Reducing rigidity and promoting efficiency.
Let’s know more about the new Repo Rate and how it will affect the common public:
What is a Repo Rate?
India has two types of banks, several commercial banks that are privately and publicly owned and a central bank, which is the Reserve Bank of India (RBI). RBI is responsible for all the printing and flow of money in the Indian market. To lend money to the banks, an interest rate is levied on them called Repo Rate. It helps the RBI in controlling the rate of inflation.
In simpler terms, when commercial banks, for example, ICICI and Punjab National Bank, approach the RBI for lending money, they have to pay interest on that amount. This rate of interest is known as Repo Rate. It refers to Repurchase Agreement or Repurchasing Option.
When any bank is low on funds and unable to maintain the minimum amount that needs to be kept by them, it asks the apex bank of India for a loan. For that, commercial banks are required to maintain security. An agreement is signed between both banks that the securities will be repurchased at a predetermined price.
Changes in Repo Rate (2019 to 2022)
The Reserve Bank of India has made the following changes in the Repo Rate since 2019:
| Date | Repo Rate |
| February 7, 2019 | 6.25% |
| April 4, 2019 | 6.00% |
| June 6, 2019 | 5.75% |
| August 7, 2019 | 5.40% |
| February 6, 2020 | 5.15% |
| March 27, 2020 | 4.40% |
| May 22, 2020 | 4.00% |
| August 6, 2020 | 4.00% |
| October 9, 2020 | 4.00% |
| May 2022 | 4.40% |
| June 8, 2022 | 4.90% |
| August 5, 2022 | 5.40% |
What are the new Repo Rate?
With a third time increase in the Repo rate by RBI this year, it has now become 5.40%. It has been done to control inflation in the country. This is the same Repo Rate in 2019, right before the pandemic hit the whole world. Moreover, it is the highest in the past three years. The decision will be implemented immediately, as RBI Governor Shaktikanta Das mentioned.
This increase has also led to changes to the Standing Deposit Facility (SDF), which now stands at 5.15%, and the Marginal Standing Facility (MSF) and the Bank rate, which is currently 5.65%. There is no information available regarding the Reverse Repo Rate, which was 3.35% before the recent increase.
How does it affect ordinary people?
Every new change by the central bank affects the common public in some way or the other. The recent change in the repo rate will make the Easy Monthly Installments (EMIs) on loans higher. As per the builders, the high home loan rates will affect their sales.
It also had an impact on the bank stocks. Stocks of ICICI Bank, AU Small Finance Bank, Axis Bank and Federal Bank saw a jump. On the contrary, the stocks of Bandhan Bank, IndusInd Bank, Bank of Baroda, State Bank of India, HDFC Bank and Kotak Mahindra Bank saw a decline.
