Home and car loans are expected to be costlier as RBI has increased the repo rate by 40 basis points. Along with this, the CRR has also increased. RBI says that this has been done to control inflation.
RBI Governor Shakti anta Das has dealt a big blow to bank customers by announcing a 40 basis point increase in the repo rate on Wednesday.
RBI Governor informed that the monetary policy committee of the central bank has unanimously voted to increase the repo rate by 40 bps. Now this rate has gone up to 4.4%. This increase in the repo rate is expected to increase the EMI of home loans, car loans and personal loans.
CRR also increased
He told that to control inflation, RBI has increased the benchmark interest rate. Inflation is also expected to increase in April. Along with this, the central bank has also increased the Cash Reserve Ratio (CRR) by 50 basis points.
Why loan can be expensive
Repo Rate is the prime interest rate at which banks get loans from RBI. Banks give loans to customers from this loan amount.
The increase in the repo rate means that the loans of many types (Home Loan, Car Loan, Personal Loan) from the bank will become expensive. Reverse repo rate is the rate at which banks get interest on money deposited with RBI.
Reverse repo rate is used to control the liquidity of cash. When there is more liquidity in the market, the RBI increases the reverse repo rate.
The purpose behind this is to make banks deposit their money with RBI to earn more interest. At the same time, every bank has to deposit a certain part of its total cash with the Reserve Bank. This is called Cash Reserve Ratio (CRR).
Fed Reserve may increase rate
The RBI Governor’s statement comes at a time when global inflation has become a challenge to India’s growth recovery. There is also news that the US Federal Reserve may increase the key interest rate by 50 basis points to contain record inflation.
