RBI Monetary Policy: Bad news for loan borrowers, RBI hikes repo rates again

New Delhi: In a move that will raise borrowing costs for corporates and individuals, the RBI on Wednesday hiked the benchmark lending rate by 50 basis points (bps) to 4.90 percent to contain inflation that has remained stubbornly above the target of 6 percent for the last three months.

Last month, the Reserve Bank of India took an unscheduled decision thereby increasing the repo rates by 40 bps to 4.40 percent, taking everyone off-guard. This was the first increase in the policy repo rate in nearly two years. 

Repo is the rate at which Reserve Bank of India lends funds to commercial banks when needed. It is a tool that the central bank uses to control inflation. The reverse repo rate is the rate at which the RBI borrows from banks. The repo rate currently stands at 4.90 percent while the reverse repo rate is at 3.35 percent. Reverse repo rates has remained unchanged since May 2020.

The central bank had last revised its policy repo rate or the short-term lending rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low of 4 percent.

The six-member Monetary Policy Committee headed by Reserve Bank of India Governor Shaktikanta Das started deliberations on the bi-monthly policy review on Monday. 

In a recent interview, RBI Governor Das said that the expectation of rate hikes in June is a "no-brainer".