Explained | 5 Ways In Which Repo Rate, CRR Hike By RBI Will Impact You

Repo Rate | New Delhi: In a surprise move on Wednesday, the Reserve Bank of India (RBI) announced a hike in repo rate and Cash Reserve Ratio (CRR). The repo rate has been hiked by 40 basis points to 4.4 per cent. On the other hand, CRR has been hiked by 50 basis points to 4.5 per cent. The RBI Governor Shaktikanta Das made the announcement on Wednesday. Just days ago, the RBI had kept the rates steady for the 11th consecutive time in its Monetary Policy Committee (MPC) meeting.Also Read – RBI’s Increased Repo Rate Will Impact Home, Car And Personal Loan EMIs. Check Here How

The rate hike rattled the share markets. Just after the announcement, Sensex crashed over 1,300 points. Nifty too faced a massive hiccup. However, on Thursday, the markets were trading in the green, with Sensex crossing the 56,000-mark and Nifty crossing 16,900 levels. Also Read – RBI Hikes Interest Rate by 40 Basis Points to 4.40%, All Loan EMIs to go Costly

5 Ways In Which Repo Rate, CRR Hike Will Impact You

1) Costlier Loans Also Read – Explained: Why do Flights Face Turbulence, How Can You Be Safe?

The direct impact of the repo rate hike is the rise in interest rates charged by the banks on home loans and all other loans. Most of the banks have already raised their interest rates. Now with RBI announcing the hike, the rates are expected to go higher.

2) Rise in interest on deposits

For depositors, however, this might prove to be a blessing. The interest rates on deposits including savings accounts, Post office savings accounts, Fixed deposits (FD) and others are most likely to jump too.

3) Rise in bond yields

Along with savings, the return on bonds is also likely to go up. On Wednesday only, the yield on a 10-year government bond rose 25 basis points.

4) Slow down in economic recovery

In the last MPC announcement, RBI Governor Das said that the demand is not yet back to the pre-pandemic level. With the loans getting costlier, the recovery in demand is likely to face more difficulties. According to a report by BusinessLine, ‘private consumption is yet to move strongly above pre-pandemic level’.

5) Fall in Inflation

With the rise in CRR, the RBI aims to suck the excess liquidity out of the economy. The inflation figures of March and April have worried the policymakers. Owing to the ongoing Russia Ukraine war, the prices of most commodities have risen. The oil prices are on fire. In all this, more demand also pushes inflation upwards. Through CRR, RBI aims to remove Rs 87,000 crore from the economy to control the prices.