RBI Repo Rate Hike: The three-day Monetary Policy Committee (MPC) meeting of the RBI—the country’s central bank—has announced its results. Sanjay Malhotra provided details on the decisions taken during the meeting. He announced a 25-basis-point (bps) hike in the repo rate, raising it from 5.25% to 5.50%. This increase is likely to impact home loans, car loans, and other floating-rate loans, potentially leading to higher EMIs for some customers in the future.
The West Asia Conflict: A Cause for Concern
At the start of his address, the RBI Governor discussed the ongoing conflict in West Asia and rising crude oil prices. He noted that global inflation could rise; specifically, a surge in fuel prices could drive up food prices. Consequently, the RBI decided to raise the repo rate, clarifying that its primary objective is to curb inflation.
Hike in SDF and MSF Rates
Along with the repo rate, the RBI raised the Standing Deposit Facility (SDF) rate by 25 bps, bringing it to 5.25% from 5.00%. Similarly, the Marginal Standing Facility (MSF) rate was increased by 25 bps to 5.75%.
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Fourth MPC Meeting of the Year
This marks the RBI’s fourth MPC meeting of the year. In the previous meetings held in April, June, and August, the RBI maintained the repo rate at 5.25%. Experts had anticipated a 25-bps hike due to rising inflation and crude oil prices—a move the RBI has now confirmed. Additionally, the RBI has modified its monetary policy stance; the previous ‘neutral’ stance has now been changed to ‘calibrated tightening’. This simply means that the RBI is making every effort to bring inflation under control. Therefore, there is no likelihood of a reduction in the repo rate.
What is the repo rate?
The repo rate is the rate at which the RBI lends money to banks for the short term. When the repo rate rises, borrowing money becomes pricier. This impacts loans taken by customers; a hike in the repo rate makes loans costlier, while a reduction makes them cheaper.
Projected rise in inflation
The RBI has projected that inflation could rise from 4.3 per cent to 4.4 per cent in the 2027 financial year. CPI-based inflation is estimated to range between 5 per cent and 5.2 per cent.
Potential for GDP growth
Despite the hike in the repo rate, the RBI anticipates GDP growth. This growth is projected to be between 6.7 per cent and 7.1 per cent. GDP could range from 6.4 per cent to 7.2 per cent in the second quarter and rise to between 6.5 per cent and 6.9 per cent in the third quarter. Subsequently, GDP could grow to 6.8 per cent in the fourth quarter.