RBI increases Interest Rates to tackle Inflation

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RBI increases Interest Rates to tackle Inflation
06 May 2022
6 min read

News Synopsis

On Wednesday, the Reserve Bank of India in a bid to effectively battle the soaring inflation, increased the interest rates by 40 bps. The hike increase in interest rates will eventually increase home, auto, and other loans EMIs. Other significant reasons behind this move of India’s Central Bank are said to be increasing geo-political tensions, sky-high crude oil prices, and global scarcity of commodities that have affected the Indian economy.

The Reserve Bank of India RBI increased the repo rate

to 4.40 percent from 4 percent. Other than this, It is also the first instance of the RBI monetary policy committee holding an unscheduled meeting.

The increase in repo rate will in turn increase the cost of loans for corporate firms as well as individuals. Additionally, the Reserve Bank of India has also increased the cash reserve ratio (CRR) by 50 basis points to 4.5 percent.

The increase in the cash reserve ratio means banks will have to deposit more money with the central bank, leaving them with less to lend to their customers. In a video address, RBI Governor Shaktikanta Das informed that this would drain Rs 87,000 crores of liquidity from the banking system.

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