In its first Monetary Policy statement of 2023, the Reserve Bank of India (RBI) on Wednesday hiked the policy repo rate by 25 basis points to 6.5%. This was the sixth straight hike to the repo rate, which, in December last year, was raised by 35 basis points to 6.25%.
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The decision to raise the repo rate was approved by a 4-2 majority by the central bank’s Monetary Policy Committee (MPC), said RBI governor Shaktikanta Das, who announced decisions made by the committee, which met for three days starting February 6.
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But, how does repo rate increase the common man? Here’s how:
Loan EMIs to rise: The rise in repo rate – it is the interest rate charged by RBI when commercial banks borrow from it – will have a direct impact on loan borrowers and bank depositors. Now, banks too will raise the interest rate on retail loans, and usually also increase the tenure of the loan; the higher the remaining tenure of the loan, the higher the EMI.
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Overall, since May 2022, the repo rate has been hiked by 250 basis points.