It’s not that long when the market experts were divided in their opinion about the likely action of Indian central bank Reserve Bank of India (RBI) on the benchmark interest rate.
Everybody was like, “Will RBI raise interest rate again or not?”
Everybody was eagerly waiting for the decision. And when the curtain falls, what we see?
The Reserve Bank of India (RBI) has raised the repo rate by 25 bps to 6.50 percent. Today on August 1, 2018, the central bank for the second time raised the repo rate. The decision was taken by the 6-member Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, at which it lends to commercial banks, to 6.5 percent but kept its policy stance as “neutral”.
Out of the 6 members, 5 were in favor of the decision but Ravindra H Dholakia voted against the decision.
“The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/-2 percent while supporting growth.” He said.
Not just the Repo rate but also reverse repo rate, at which RBI borrows from the bank was also raised to 6.25 percent. Similarly, the hike has seen in the marginal standing facility (MSF) rate and the Bank Rate which both were raised to 6.75 percent.
Before that RBI raised the repo rate on June 6, 2018, by 0.25 percent to 6.25 percent which was the first increase since January 28, 2014. However, the rates were cut by 25 basis points last year on August 2, 2017.
It is said that the decision was taken by the RBI in the third bi-monthly monetary policy of the 2018-19 in citing various concerns to inflation such as uncertainty in the global financial market, volatile crude prices, hardening of input crude prices for corporates, uneven distribution of rainfall, and rise in MSP of foodgrains.
However, this RBI decision was to control inflation, high cost seeps into the economy, retail inflation, thanks to higher fuel prices, and a robust economy. Although there are several reasons for taking such a step in hiking interest rates nobody can also deny the fact that home, auto loans EMIs may also rise as RBI raises repo rate.
It would start when the commercial banks pass on the repo rate hike to consumers by increasing their marginal cost-based lending rate (MCLR).
This decision may not make easy taking loans but the retired people and savers who live on interest income likely to get benefited from this.