RBI hikes key interest rate by 35 bps on 07 Dec 2022

 Fight against inflation remains major concern, growth forecast is lowered to 6.8 pc from 7 pc this fiscal says RBI. Reserve Bank of India Governor Shaktikanta Das announces the bi-monthly monetary policy, Wednesday, Dec. 7, 2022 hiked the key policy rate, the repo rate or the rate at which the RBI lends funds to banks, by 35 basis points to 6.25 per cent in a bid to rein in retail inflation.

What impact will the RBI’s decision have?

Lending rates of banks are expected to go up as the cost of funds is expected to rise further. EMIs on vehicle, home and personal loans will also rise. The external benchmark linked lending rate (EBLR) of banks will rise by 35 bps — one basis point is one hundredth of a percentage point— as such loans are linked to the Repo rate. As much as 43.6 per cent of the total loans are now linked to the Repo rate.

Marginal cost of funds-based lending rates (MCLR), which accounts for 49.2 per cent of the loans portfolio of banks, are also expected to move up. The hike will help in moderating inflation in the country.

Deposit rates are also expected to rise in the near future. SBI, India’s largest bank, now offers a 6.10 per cent rate on one-year term deposits.

If the retail inflation cools down, the RBI is likely to pause the rate increases in 2023.

MonthHike (BPS)Repo Rate %
May-04404.4
Jun-08504.9
Aug-05505.4
Sep-30505.9
Dec-07356.25

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