RBI MPC Outcome: Monetary Policy Decision Tomorrow, Hike In Key Interest Rates Expected | Check More Details

RBI's Monetary Policy Committee (MPC) will announce its policy decision tomorrow (Wednesday) at 10 am

The MPC meeting, which began on Monday and will end on Wednesday with the announcement of the MPC’s decisions regarding key interest rates, CRR, and policy amendments to be made by the RBI governor.

Source : Getty

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will announce its policy decision tomorrow (Wednesday) at 10 am. The MPC meeting, which began on Monday and will end on Wednesday (June 8) with the announcement of the MPC’s decisions regarding key interest rates, CRR, and policy amendments to be made by the RBI governor.

Governor Das recently hinted at the rate hike during an interview. He said, "Expectation of rate hike is a no-brainer, there will be some increase in the repo rates, but by how much I will not be able to tell now but to say that 5.15 may not be very accurate."

 A snapshot on the RBI's monetary policy:

• RBI likely to increase repo rate "again"
• Repo rate was increased on May, 4, 2022, by 40 basis points
• This is likely to make loans costlier (if banks pass on the increase/decrease on to the customers)
• It is likely to reduce inflation (inflation reached 7.79 per cent in April, 2022) 

What is repo rate?

• Repo rate is the interest rate at which banks take loan from the RBI. Banks need a lot of money for day to day operations (providing loans, funding projects, various transactions, etc.) For this, banks often take loans from the RBI. 

Impact of repo rate

• It is one of the main tools of the RBI to keep inflation under control.
• It maintains stable prices in the market
• Achieves the target of fixed economic growth rate

During time of high levels of inflation, RBI usually increases repo rate.

• It is the central bank's attempt to reduce the flow of money in the economy
• This makes borrowing costly
• This in turn slows down investment and money supply in the market
• As a result, it negatively impacts the growth of the economy, but helps in controlling inflation

Sometimes, the RBI also decreases repo rate.

• By decreasing repo rate, RBI tries to pump in funds into the market
• This makes it cheaper to borrow money for different investment purposes
• It also increases the overall supply of money in the economy
• And, ultimately boosts growth rate of the economy, however, may result in increasing inflation

Impact of repo rate on common man (if banks pass on the increase/decrease rate on to the customers)

When increased:

• When banks get loans at higher interest rates from the RBI, they increase the interest rate on loans they provide to customers
• Increase in repo rate means costly EMIs on loans, increase in interest rates on home, car, or personal loan rate

When decreased:

• When banks get loans at lower interest rates from the RBI, they decrease the interest rate on loans they provide to customers
• Decrease in repo rate means cheaper EMI's on loans, reduction in interest rates on home, car or personal loan

Timeline on repo rate:

• March 31, 2004 – 6.00 per cent
• April 1, 2014 – 8.00 per cent
• April 22, 2022 – 4.00 per cent
• May 4, 2022 – 4.40 per cent (latest hike)